Opinion
Business as usual? Signs the SME lending market is returning to pre-pandemic levels Colin Goldstein Commercial Growth Director iwoca
I
t’s fantastic to be able to use the word ‘return’ after two years of disruption. As we look back on the first quarter of 2022, we see small businesses returning to their growth plans and the lending market returning to its pre-pandemic state. However, we must remain alert to the impact of the inflationary crisis on SMEs and do everything we can to support them. According to our latest SME Expert Index (based on over 3,300 small business applications for finance submitted in March), nearly a third of brokers (30%) believe the UK SME lending market has already returned to pre-pandemic levels. Furthermore, another third (31%) believe the market will return within six months, and only 10% of brokers expect it to take over 12 months to bounce back. Over a third of brokers (34%) reported an increase in loan applications submitted in the last month compared to the previous month. Further signs of more familiar levels of activity in the lending market were reflected in brokers’ views on the winding down of the government schemes introduced to help SMEs through the pandemic. With the Recovery Loan Scheme closing in June, only 18% of brokers said they’re dissatisfied with the scheme’s end, compared to 39% who are satisfied with its imminent closure. This too indicates a readiness in the market to return to more business as usual lending solutions.
Heightened demand amidst rising business costs This spike in lending activity – whilst certainly an encouraging sign of small business optimism – could also be partly attributed to 48 | NACFB
small businesses’ escalating need for finance, as they navigate the increasing cost of doing business due to rising energy prices and inflation. The fact that ‘managing day-to-day cash flow’ became increasingly important as a loan purpose for SMEs certainly hints towards this. Nearly one in three brokers (31%) identified cash flow as the most common motivator when applying for finance, which is the first time this option has risen month-on-month and a significant shift in the downward trend it’s followed since the index began in Q1 2021. The survey also signalled that small businesses were looking to access smaller bridging loans – perhaps to cope with these rising costs – with the most requested loan size for SMEs in Q1 2022 sitting under £25,000. This is quite a difference to the Q4 2021 results when the most commonly requested loan size lay between £50,000 and £200,000.
Borrowing for growth still tops the chart
“
Despite this rise in cash flow concerns, growing the business
Over a third of brokers (34%) reported an increase in loan applications submitted in the last month compared to the previous month
