The report also concluded that the fourth quarter witnessed an uptick in the volume of loan and overdraft approvals, signalling early indications of improving business confidence. It’s also worth noting that 2023 marked the third consecutive year of declining gross lending, which can be attributed to factors such as uncertainty in demand, increased interest rates, and the lasting effects of lending acquired during the pandemic. However, the decline in gross lending halted in the final months of 2023, suggesting a potential shift in SMEs' approach to finance.
Notably, the latter half of 2023 saw varying lending patterns across sectors. While the manufacturing and agriculture sectors experienced two consecutive quarters of increased borrowing in Q3 and Q4, the real estate and construction sectors continued to witness declines in the context of reduced house-building activity.
Despite challenges, the report also highlights signs of resilience and recovery. The data reveals a diversification in lending sources, with 59% of SME lending originating from entities outside of major banks. Medium-sized businesses notably saw an increase in gross lending, marking the first rise in two years.
Approval rates for new financing also saw improvement, with the number of approved loans and overdrafts rising by 3% and 7%, respectively, compared to the previous quarter. Accommodation and food services, as well as recreation and personal services, reported notable increases in approvals.
Additionally, while SME deposits experienced a slowdown in decline compared to the previous quarter, they remained nearly a fifth higher than pre-pandemic levels by the end of 2023. Monthly repayment trends remained stable, despite a seasonal decline reported in December.
The invoice finance and asset-based lending (IF/ABL) sector played a significant role in supporting UK businesses, achieving a combined turnover of GBP 316 billion, a record high. IF/ABL facilities offered working capital facilities exceeding GBP 50 billion by the end of the year, with an average client drawing down GBP 584,000.
Official representatives from UK Finance acknowledged the challenges faced by SMEs in 2023 but expressed optimism regarding the uptick in approvals for new finance. They encouraged businesses to engage in early conversations with lenders, emphasising their readiness to support those in need.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now