SME lending fell in Q1 but demand shows “signs of recovery”
Lending to small- and medium-sized enterprises (SMEs) fell in the first quarter of 2023 due to weaker demand, but the market is showing signs of recovery, UK Finance has said.
The trade body released its latest business finance review today, which saw gross lending across the seven lenders in its sample total £3.7bn in the first quarter of 2023.
This is down from £4bn in the previous quarter, and from £4.9bn in the first quarter of 2022.
“There were regional variations – the largest falls were in the South West and Scotland, whereas the South East (excluding London) saw the biggest increase in lending, rising more than seven per cent quarter-on-quarter,” UK Finance said.
The trade body noted signs of recovery in demand for finance however, noting a rebound in applications for both loans and overdrafts, with banks reporting quarter-on-quarter growth of 20 per cent and 11 per cent respectively.
UK Finance also reported an increase in loan and overdraft approvals, in contrast to the declines at the end of 2022.
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“The economy and SMEs have demonstrated resilience in the face of more challenging trading conditions and significant cost pressures, obstacles that we expect to ease gradually over the course of this year,” said David Raw, managing director of commercial finance at UK Finance.
“Against this challenging backdrop, demand for finance has showed some early signs of recovery, although this has not yet fed through into the gross lending figures which showed another decline in the first quarter.
“Muted investment intentions and recent rises in interest rates will also act as a drag on demand for finance. SMEs continue to have some flexibility within existing facilities and deposits, which will support many through another bumpy year.”
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Invoice finance and asset-based lending advances increased sharply in 2022, the data found, although in the first quarter the rate of advances increased at a slower rate.
Although this is the slowest rate of growth since mid-2021, progress here has been stronger than other forms of finance since the end of government-backed loan schemes in 2021, UK Finance said.
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