SME anxieties regarding a potential recession have eased by a third (32%) since Q4 2022, though inflation concerns remain, according to iwoca’s Q4 2023 SME Expert Index.
Under half (49%) of SME finance brokers surveyed “report their SME clients having any recession fears––a significant drop compared to 73% in Q4 2022.”
Nonetheless, economic fears persist: inflation remains disquieting to SMEs “going into 2024, with nearly half (45%) of brokers suggesting it is SMEs’ main concern, compared to just a third (32%) of brokers in Q4 2022.”
Demand for larger loans climbing
As concerns around a recession fall, “over a quarter (26%) of SME finance experts say that small businesses are mostly seeking higher-value loans of over £100,000 – up from 15% the previous quarter – suggesting the UK’s enterprises may be tending to growth ambitions.”
Demand for smaller loans is waning in line “with SMEs’ focus on larger loans, suggesting growing demand for longer-term funding, as opposed to smaller loans to ease short-term cash flow concerns. In Q4, just two in five (40%) brokers said loans of up to £50,000 were SMEs’ most popular choice, an 8pp drop since Q3.”
Alternative lenders pick up the slack
Despite growing demand “for high-value finance, SME financing options at traditional banks are being scaled back––three in four (77%) brokers note that high street lenders are reducing their appetite for funding SMEs.”
In response to the tightening lending environment, “almost three-quarters (71%) of brokers now submit a majority of their SME clients’ loan applications to alternative lenders.”
Dan Guest, Director & Asset Finance Specialist, TAFCO Ltd, said:
“The market as a whole has bounced back after the continuous doom and gloom expected in 2023 – this has now filtered down to SMEs who have gained renewed confidence. At TAFCO we have noticed a rise in loans above £75,000 with a desire to settle higher rate debt, consolidate smaller loans and reduce outstanding terms on the back of an increased order book. We expect this to continue given the rate decrease across the market, from both unsecured and secured Hire Purchase debt.”
As noted in the update:
“Our strategy has always been to utilise specialist lenders outside of the high street to ensure that our customers are supported across all of their requirements; the creditworthiness and requirements from high street lenders has become restrictive to many businesses.”
Smaller firms agree with the Bank of England on inflation, said Colin Goldstein, Commercial Growth Director of iwoca, “… UK small business owners continue to hold an optimistic outlook,” he said. “The SME lending market is strengthening, with rising applications for larger loans and falling inflation hinting at a brighter future.” But challenges remain.
Since launching in 2012, iwoca reports that it has made more than £3.5 billion of finance available to over 100,000 businesses and raised over £850 million in equity and debt finance.
