Lending trends for SMEs returning to normal

In its latest business finance review, UK Finance found the demand for cashflow finance for SMEs is returning to normal.

According to the report, the gradual return to asset-based lending is caused by the ending of COVID-19 restrictions and increasing cost pressures for businesses.

Following a significant growth in lending over 2020/21 due to the pandemic, the demand for financing fell over the last year. During the first quarter of 2022, gross lending to SMEs totalled £4.9 billion, an increase of £0.1bn from the previous quarter.

The report also found SMEs are continuing to meet their Government lending scheme repayment obligations. Even though some businesses are falling behind, the report said "payment problems are currently not as prominent as many had initially feared."

Stephen Pegge, MD of commercial finance at UK Finance, said:

"Activity across the economy continued to expand at the start of the year, but SMEs were beginning to face a pick up in economic headwinds.

"While concerns about household finances have been making headlines, many businesses are also dealing with sharply rising input costs and more uncertainty about the demand outlook.

"Our data continues to show that SMEs are meeting repayments of Government-backed loans, accessed during the pandemic, but this has not significantly dented the financial headroom available through deposits and flex in other arrangements."

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