UK Finance predicts slowdown in SME lending

UK Finance has predicted a slowdown in lending to small- and medium-sized enterprises (SMEs) following a reduction the number of applications for business loans.

The latest Business Finance Review found that over the previous quarter, business owners appeared to become “more cautious”, and submitted fewer loan applications.

Gross lending via loans and overdrafts fell to £4.5bn in the third quarter of the year, down from £5.1bn in the previous quarter.

London-based loan values fell for the second month in a row. UK Finance also noted that the South West of England saw a particularly “marked” drop during the last quarter, which could be due to the decline in finance applications from the agricultural sector.

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However, invoice financing and asset-based lending continued to grow and have now surpassed pre-pandemic levels. There have been nine consecutive quarters of growth within this lending segment, with advances standing at almost £22bn by the end of the third quarter.

“As the UK economy enters choppier waters, SMEs have become more cautious in their outlook and this is reflected in a more subdued appetite for finance,” said Stephen Pegge, managing director of commercial finance at UK Finance.

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“Demand has, however, been somewhat stronger for products which help with cashflow management, such as overdrafts and, more notably, invoice finance and asset-based lending products.

“SMEs are however continuing to meet debt repayment obligations on the back of more significant borrowing during the Covid-19 pandemic.

“With the UK economic outlook expected to deteriorate further in the early part of 2023, SME growth plans and investment are likely to remain cautious over the coming quarters. The recent energy support package from government will help businesses manage some of the near-term cost pressures.

“In addition, data continue to point to a good degree of headroom across existing facilities and deposits. But business that need further finance support, whether that be to manage existing obligations or for new opportunities are encouraged to have an early conversation with their lender.”

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