SMEs relying on savings rather than new loans
UK SMEs were relying on savings rather than taking out new loans in the third quarter, according to UK Finance research.
The trade body released its latest Business Finance Review which showed £3.5bn was lent to SMEs between July and September this year. This is the fifth consecutive quarterly fall, while gross lending is down by just over a fifth compared to the same period in 2022.
UK Finance attributed the decline to demand uncertainty, higher interest rates and the impact of lending taken out during the pandemic.
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A significant stock of cash deposits may be limiting demand for new finance, UK Finance said. Its data showed that SMEs were drawing on these to a greater degree than in the previous quarter, with total deposits falling by 4.5 per cent.
UK Finance does not expect businesses to become more confident about taking on new finance in the coming quarters, until they can see a clearer path to an economic recovery.
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“SMEs in all parts of the economy continue to face a challenging outlook,” said David Raw, managing director of commercial finance at UK Finance.
“Cost pressures may be easing but demand looks set to remain weak in the near term.
“Our data suggests that SMEs are leaning more heavily on existing resources, particularly cash deposits, rather than seeking new finance. The higher interest rates environment will also be suppressing firms’ appetite to borrow.
“A stronger demand outlook is ultimately what SMEs need to be confident to make investment decisions for future growth. And the chancellor’s recent announcement on ‘full expensing’ of investment could provide an added boost for future plans.”
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