Key findings:

• Gross lending increases again to the highest level since Q4 2022.
• Most UK regions see growth in gross lending.
• Number of finance approvals rises by over a quarter, with the value up by ten per cent.
• SMEs continue to run down deposits but still retain a significant savings buffer, ten per cent above pre-pandemic levels.

Gross lending

UK Finance data shows that further growth in business lending from high street banks took place at the start of 2024, following an increase at the end of 2023. Q1 2024 saw a 15 per cent increase compared with the previous quarter. At just over £4 billion, this was eight per cent higher than the same period in 2023. 

While most regions in the UK saw this growth, the greatest increases in new lending to SMEs took place in the East Midlands, London and the North East. Lending rose in eight of the ten main sectors covered by UK Finance data, with the largest increases to SMEs operating in education, real estate, professional services and construction.

UK Finance’s data has been provided by a collection of high-street bank lenders[1].

Chart 1: Gross Lending to SMEs

Approvals 

New finance approvals were 27 per cent higher in Q1 2024 compared with the previous quarter, indicating a ten per cent increase in the value of approved finance. This was the highest number of approvals for new or increased loans and overdrafts since 2022 Q1.

Chart 2: Finance approvals, number

Deposits

At the start of 2024, SMEs continued to reduce the stock of cash deposits. Overall deposits were 4.5 per cent lower at the end of Q1 compared with the end of the previous quarter. 

Deposits have fallen from their Covid-19 pandemic-peak of just over £270 billion in Q4 2021 to £223 billion in Q1 2024. SMEs retain a significant buffer within existing deposits, which remains over ten per cent higher when compared to pre-pandemic figures.

Chart 3: SME deposits, £billions

Repayments

The level of SME finance repayments remained stable in the first three months of 2024. Over the past year there has been some variation in the level of repayments by sector. While repayments among manufacturers and SMEs in transport, storage and communications have shown a downward trend in recent quarters, repayments in accommodation and food services have increased,  particularly in the first three months of this year.

Chart 4: Repayments, £millions

David Raw, Managing Director of Commercial Finance at UK Finance, said:

It is encouraging to see further signs that SME demand for finance is returning. As the economic outlook for SMEs improves, the financial services sector is helping businesses across the UK. Lenders remain ready to support SMEs 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.