SME lending slows as overdrafts applications continue to trend upwards

Overall gross lending through loans and overdrafts edged down from £5.1bn to £4.5bn - with this representing the second consecutive quarter in which lending values declined in London. Additionally, the south west saw a marked drop which could be due to the decline in finance applications from the agricultural sector - which is particularly prominent in the region. 

For other regions in the UK, lending remained stable and at similar levels to those seen before the pandemic. 

However, overdraft applications represented the highest volume of applications since the first quarter of 2020. This points to cashflow management and working capital requirements rather than business development.  

Reflecting on these figures, UK Finance’s managing director of commercial finance Stephen Pegge said: “As the UK economy enters choppier waters, SMEs have become more cautious in their outlook and this is reflected in a more subdued appetite for finance.  

“Demand has, however, been somewhat stronger for products which help with cashflow management, such as overdrafts and, more notably, invoice finance and asset-based lending products. SMEs are however continuing to meet debt repayment obligations on the back of more significant borrowing during the Covid-19 pandemic.  

“With the UK economic outlook expected to deteriorate further in the early part of 2023, SME growth plans and investment are likely to remain cautious over the coming quarters. The recent energy support package from government will help businesses manage some of the near-term cost pressures.

 
“In addition, data continue to point to a good degree of headroom across existing facilities and deposits. But business that need further finance support, whether that be to manage existing obligations or for new opportunities are encouraged to have an early conversation with their lender.”