"With many businesses prioritising repaying Covid-19 loans, appetite for new finance remains subdued. However, finance is still there for SMEs where it is affordable. "
- David Raw, managing director of commercial finance at UK Finance
UK Finance data shows that overall gross lending to SMEs was broadly stable at around £4 billion in Q2 2024, broadly similar to gross lending in Q1, but higher than a year previously when it was £3.6 billion.
Growth in lending over the first half of this year varied across sectors and regions. H1 2024 saw regional lending growth strongest in the East Midlands and North West. The only region to post a decline in this period was Yorkshire and Humberside. H1 2024 lending to SMEs in agriculture, construction, and real estate noticeably increased on the previous year, whereas lending to manufacturers and SMEs in transport, storage, and communications was down.
As the UK economy continues to recover from the mild recession at the end of last year, surveys indicate improving sentiment across all business sectors going into the second half of 2024. While there has been an increase in insolvencies, as a share of businesses these remain lower than in the 2008-2009 downturn. Nevertheless, UK Finance says this will remain an important metric to watch as the economy continues to recover.
Q2 saw a notable rise in overdraft approvals for small enterprises, with moderate increases in loan and overdraft approvals for medium sized enterprises. Across all sectors, approval volumes in Q2 were up on the same quarter a year ago, indicating a turning point after lower levels of lending seen after the pandemic.
The total value of deposits levelled off in Q2 and, at over £220 billion, SMEs retain a good deal of the savings cushion accumulated during the pandemic. Total deposits were still roughly 14% higher compared with the start of 2020. The declining trend in cash deposits has been evident across all sectors of the economy.
The value of repayments has remained stable over the past year, running to around £6 billion per quarter. As many SMEs have outstanding Covid-19 loans with a few years of repayments remaining, this level looks set to continue.
David Raw, managing director of commercial finance at UK Finance, said: “With many businesses prioritising repaying Covid-19 loans, appetite for new finance remains subdued. However, finance is still there for SMEs where it is affordable. As the economy looks to turn a corner, the finance sector remains ready to provide it with the funds it needs to manage cash flow, and to invest and grow. Looking to the future, lenders can help businesses with planning their transition to Net Zero and any other long-term goals."
