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UK Finance today releases its latest Business Finance Review which reports on the finance needs of small and medium-sized enterprises (SMEs) in the fourth quarter of 2023 and the year as a whole.
Key highlights:
2023 summary
Demand uncertainty, higher interest rates, and the impact of lending taken out during the pandemic all contributed to weakness in gross lending in 2023. However, the decline in gross lending over the previous five quarters came to a halt in the final months of 2023.
Our fourth quarter data contains promising signs that SMEs are planning for the future and have more confidence to take on new or additional finance.
The second half of 2023 also saw greater sector variation in lending patterns. The manufacturing and agriculture sectors reported two consecutive quarters of increased borrowing in Q3 and Q4, with only real estate and construction continuing to see falls in borrowing throughout the second half of 2023, amid sharp falls in house building activity.
In other sectors there are signs that demand for finance is returning, and lenders are meeting these demands with new loan finance.
Gross lending
In an increasingly competitive market, 59 per cent of SME lending now comes from outside of the big banks. UK Finance’s latest data shows £3.5 billion was lent to SMEs in the fourth quarter of 2023, unchanged from the third quarter. This was the first quarter not to see a fall since the second quarter of 2022.
Lending to medium-sized businesses is the first to turn a corner, as these firms saw the first rise in gross lending in two years.
Chart 1: Gross lending to SMEs
Approvals
Approvals for new financing increased over the quarter. The number of new loans and overdrafts rose by three per cent and seven per cent respectively compared with Q3. The value of new loans approved was the highest since the third quarter of 2022.
Medium-sized businesses saw a more significant increase, with the value of approved overdrafts rising by nearly a fifth and loan approval values increasing by 17 per cent.
Accommodation and food services and recreation and personal services saw notable increases.
Chart 2: Number of approved loans and overdrafts
Deposits and repayments
The pace of declining SME deposits slowed in Q4 compared to Q3 2023, with deposits at the end of the year nearly a fifth higher than before the pandemic. Meanwhile, monthly repayment trends remained stable despite a seasonal decline reported in December.
IF/ABL
The invoice finance and asset-based lending (IF/ABL) sector supported UK businesses with a combined turnover of £316 billion, an annual record. This turnover drove record availability within IF/ABL facilities with lenders offering working capital facilities of over £50 billion at the close of the year. The average value of advance per client was the second highest recorded, with the average client drawing down £584,000.
David Raw, Managing Director of Commercial Finance at UK Finance said:
2023 was another challenging year for SMEs as they continued to face uncertain demand and rising borrowing costs. There were promising signs that demand for new finance may be turning a corner in the final quarter of 2023. Approvals for new loans and overdrafts increased and the rise was broad-based across all sectors. This could be a sign that confidence is gradually improving. Lenders are ready to support businesses across the UK who need and can afford finance. Those concerned about their financial position or those planning for the future are always encouraged to have early conversations with their lender.
2023 was another challenging year for SMEs as they continued to face uncertain demand and rising borrowing costs.
There were promising signs that demand for new finance may be turning a corner in the final quarter of 2023. Approvals for new loans and overdrafts increased and the rise was broad-based across all sectors. This could be a sign that confidence is gradually improving.
Lenders are ready to support businesses across the UK who need and can afford finance. Those concerned about their financial position or those planning for the future are always encouraged to have early conversations with their lender.
UK Finance Press Office 020 7416 6750 press@ukfinance.org.uk
View the Business Finance Review Q4 2023 here. The data is provided by the following institutions:
Great Britain - Barclays, Co-Operative Bank, Lloyds Banking Group, HSBC Bank, RBS Group, Santander UK, Virgin Money (CYBG).
Northern Ireland - Bank of Ireland, Danske Bank, First Trust and Ulster Bank, plus the SME business of Barclays, HSBC Bank, RBS and Santander UK for Northern Ireland customers.
For more information, please call the UK Finance press office on 020 7416 6750 or email press@ukfinance.org.uk.
UK Finance is the collective voice for the banking and finance industry. Representing more than 300 firms across the industry, we act to enhance competitiveness, support customers and facilitate innovation.
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