Image credit: Bridging and Commercial
UK Finance is reporting today that demand for SME financing improved in Q4 of 2023.
Last year was difficult for all firms as markets, both public and private, sagged. This was due to rising interest rates paired with inflation as well as geopolitical challenges. However, according to the data provided by UK Finance, the UK economy may be turning the corner. The group states that fourth quarter data contains promising signs that SMEs are planning for the future and have more confidence to take on new or additional finance.”
According to the report:
- £3.5 billion was lent to SMEs in the fourth quarter of 2023 – the first quarter not to see a fall since Q2 2022.
- Q4 saw a rise in the volume of loan and overdraft approvals as early signs of improving business confidence emerged.
- 2023 was the third consecutive year of declining gross lending.
It is important to understand that big banks no longer dominate SME lending. UK Finance states that 59% of SME lending is now provided by another entity besides establishment banks.
Loan approvals for new financing increased during the quarter as the number of new loans and overdrafts rose by 3% and 7%, respectively, compared with Q3. The value of new loans approved was the highest since the third quarter of 2022.
Invoice financing and asset-based lending thrived, generating a combined turnover of £316 billion, an annual record.
David Raw, Managing Director of Commercial Finance at UK Finance, said that SMEs faced another challenging year in 2023, but the increase displayed during Q4 could be a sign of rising confidence.
Ezechi Britton, CEO of Centre for Finance, Innovation and Technology (CFIT). a group founded with the support of the UK government and the City of London, commented on the UK Finance report.
“New data published by UK Finance has shown that lending to SMEs dropped 22% in 2023 to £14.3bn, down from £18.4 billion in 2022. This marks the third consecutive year we have seen such a decline in gross lending in the UK, underscoring the urgency for action within the industry to improve access to credit for SMEs. For many SMEs, credit decisions are currently based on the personal credit records of their directors. Banks are having to make lending decisions with only half the picture, gauging the financial health and potential of a business whilst only seeing the data aligned to an individual.”
Britton said that new data and auto-populating loan applications can improve the ecosystem.
“Our work suggested over 25% of SME loan applicants, who had been referred for manual underwriting and would potentially have failed to receive an offer of credit, could justifiably be given access to finance. This latest data from UK Finance further underscores the crucial role Open Finance will play in ensuring better financial outcomes for SMEs, as well as driving forward financial innovation in the UK.”
Source: https://www.crowdfundinsider.com/2024/03/222659-uk-finance-says-sme-lending-improves-in-q4-of-2023/