SMEs demand for finance increases as economic mood improves

During the course of the pandemic, small and medium sized businesses (SMEs) across the UK have showed tremendous resilience despite facing extremely challenging circumstances. They have repeatedly adjusted to changing lockdown restrictions, altering their business models or in some cases their entire supply chains to meet customer needs and serve communities.

To understand what's happening in the SME market, UK Finance works with an independent research company (BVA BDRC) who conduct a quarterly survey of businesses called the SME Finance Monitor. 4,250 SMEs per quarter are asked about their use of external finance as well as their own business performance. Since 2011 more than 170,000 interviews with SMEs have been carried out, making it the largest and most frequent survey of its kind in the UK.

The latest quarterly report with data for the second quarter of 2021 has just been published and provides an overview of how SMEs are feeling as Covid-19 lockdowns and other restrictions are being eased. It also provides a first measure of the impact of the end of the transition period for the UK leaving the EU.

Overall, whilst reported growth and profitability remained low for many SMEs because of the ongoing effects of the pandemic, the first half of 2021 saw an improvement in SME sentiment. Over half described their mood in Q2 2021 as ?good? and there was a marked drop in the proportion expecting either a very limited income in the next few months or seeing the pandemic as a major barrier.

In relation to Brexit, 72 per cent of all SMEs said that they were unaffected by the UK leaving the EU at the end of the transition period. 26 per cent reported a negative effect, although this increased to 43 per cent in manufacturing, 47 per cent in wholesale/retail and 55 per cent of those who both import and export.

As the economy begins to further open up, many businesses are now looking beyond surviving to finding ways to thrive in the months and years to come. More SMEs felt that the future presented opportunities rather than threats and, as a result, 52 per cent reported that they were planning to grow. This maintains the improvement seen since Q2 2020 when just 24 per cent planned to grow and brings growth ambitions back in line with 2019 figures.

At the same time, ahead of COP26 it is worth noting that over a quarter of SMEs are planning to invest significantly in carbon reduction.

With growth ambitions increasing, the demand for finance increased into 2021, with more applications being made for cash flow funding than was seen pre-pandemic. 88 per cent of applications from Q1 2020 to Q2 2021 for funding were successful and almost all those who had sought pandemic related funding, the majority through government-backed schemes, had been successful. It is notable that SMEs think they will be less likely to be able to access finance than they actually are once they make an application.

The banking and finance industry has provided close to £80 billion worth of lending through the various government-backed loan schemes. Now, as some of the government support schemes begin to taper off, the industry stands ready to provide SMEs with the access to finance to help them and drive the ongoing economic recovery.


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