SME lending was “muted” in the fourth quarter
Demand for business lending remained “muted” in the fourth quarter of 2021, with total gross lending to businesses reaching £22.6bn across the whole of last year – two thirds lower than in 2020.
The latest UK Finance Business Finance Review found that £4.8bn was loaned to small- and medium-sized enterprises (SMEs) in the final three months of 2021. This is roughly the same amount that was loaned in the third quarter of the year.
Ronan Dunphy, an analyst at Goodbody, noted that the latest UK Finance data showed “that overall credit demand remains muted.”
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The volume of both loan and overdraft applications dropped sharply after the end of the government-backed lending schemes, and continued to be flat across the remainder of the year.
Stephen Pegge, managing director of commercial finance at UK Finance, said that demand for additional loan finance has stabilised closer to levels seen prior to the pandemic, and noted that the value of new lending held up in the final months of 2021.
He added that there are signs that alternative forms of finance, such as invoice finance and asset-based lending, have turned a corner in terms of increased demand.
“2021 was another rollercoaster year for SMEs, right to the end,” said Pegge.
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“Despite the ups and downs of the past year, SMEs’ approach to financial management has been steady. A good degree of financial flexibility remains. SMEs continue to be able to draw on significant accumulated deposits and have access to unutilised arranged facilities, such as overdrafts, invoice finance and asset-based lending.”
Pegge added that while SMEs will be hoping for more stability this year, a number of challenges will linger, and the finance industry is conscious that these can affect sectors differently.
“Finance solutions are there for SMEs looking to restart investment plans, boost their working capital or fill a gap if the recovery hits another bump in the road,” he said.
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