Small- and medium-sized businesses made four per cent fewer loan applications in the third quarter of last year and even lower figures are predicted for the fourth quarter, as investment activity remains “subdued”.
According to UK Finance’s most recent Business Finance Review, more than 40,000 businesses have turned to invoice finance products over the past three years, during which time advances have grown by approximately ten per cent.
There has been a steady growth in the number of small- and medium-sized enterprises (SMEs) seeking external finance, with the latest data from the independent SME Finance Monitor showing that that the proportion of SMEs using any form of external finance rose to 46 per cent in the third quarter 2019 compared to 36 per cent in the same quarter in 2018. Just 39 per cent of businesses said that they did not and would not seek external financing – the lowest proportion since 2012.
However, despite an overall increase in loan-based financing, SMEs opted to play it safe last year by reducing their new loan applications. This was likely due to Brexit uncertainty, the depreciation of the pound, higher oil prices, and a widening trade deficit which has placed the UK in “a worsening trade position for the UK with the rest of the world”, said UK Finance.
“Deposit balances continue to grow and are in aggregate twice the level of borrowing balances,” said Stephen Pegge, managing director of commercial finance at UK Finance. “This reflects subdued investment activity and the retention of reserves by businesses in the face of continued uncertainty.
“However, credit availability is strong with eight out of ten loans being approved and 50 per cent of term lending being committed for a term of ten years or more. Invoice finance and asset-based lending has increased by ten per cent over three years as businesses seek a more diverse range of finance to support their cashflow needs.”
Lenders told UK Finance that they expect small business demand for loans to have fallen again in the fourth quarter of 2019. However, the lenders added that they were not expecting to witness rising defaults in the near term.