SME lending more than doubled last year

Small- and medium-sized enterprise (SME) lending reached £54bn in the first three quarters of 2020, more than double the annual total for 2019, UK Finance data has revealed.

The research – released as part of the quarterly Business Finance Review – showed the value of lending in the second and third quarters was £36bn higher than during the same period of 2019.

This was driven by government-backed lending schemes with lenders issuing 229 bounce back loan and 10 coronavirus business interruption loan facilities for every 1,000 companies.

In addition, UK Finance estimated that a further £600m has been delivered to firms through ‘top-ups’ to bounce back loans.

Read more: SMEs planning ahead with support from government loan schemes

Loan approval volumes increased for all industries in the second and third quarters.

Some of the hardest hit sectors such as retail, hospitality, travel, tourism and construction received a high level of support.

In previous quarters all industries averaged fewer than 20,000 loan approvals. But in the second and third quarters of 2020, more than 150,000 loans were approved for the construction and retail sectors, while more than 200,000 loans were approved for the professional and support sectors.

UK Finance noted that businesses also benefited from other support such as overdraft extensions, invoice finance, payment holidays, a deferral of VAT payments and the job retention scheme.

Read more: 90pc of SMEs want more government support

“2020 was a challenging year with the disruption of Covid-19 restrictions and uncertainty ahead of the end of European Union transition,” said Stephen Pegge, managing director of commercial finance at UK Finance.

“The UK’s banking and finance industry continues to support businesses of all sizes across the country to help them trade and invest for recovery.

“Gross lending in the first three quarters of last year was more than double the annual total in 2019, boosted by over 1.5 million businesses borrowing with government-guaranteed facilities totalling over £68bn.

“SME financing was particularly in demand in the service industries, which were amongst the hardest hit by the pandemic.”

Read more: 17 pc of SMEs used a government loan during Covid

Support from lenders and the government resulted in reduced SME outgoings in 2020. This led to a 20 per cent rise in business holdings over the first three quarters of the year to reach a record £252bn.

With companies focusing on short-term trading cashflow, the usage of overdraft facilities fell from 54 per cent in the first quarter to 39 per cent in the third.

This, alongside record levels of deposit holdings, leaves room for companies to draw down available existing facilities if needed.