SME Lending Trends in 2023: A Look at Financing and Recovery

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In the first quarter of 2023, small and medium-sized enterprises (SMEs) experienced fluctuations in lending and showed signs of recovery. 

This blog examines the finance needs of SMEs during this period, highlighting the impact of weak demand, regional variations in lending, rebounding applications, the performance of invoice finance and asset-based lending, and the stability of SME financial resources. 

Overview of SME Lending in Q1 2023

The Business Finance Review by UK Finance provides valuable insights into the lending landscape for SMEs during the first quarter. 

Despite challenges, SMEs demonstrated resilience and adaptability, with financing trends reflecting the economic conditions of the time.

Impact of Weak Demand on Financing

The weak levels of demand for finance observed at the end of 2022 contributed to a decline in gross lending across the sample of seven lenders in Q1 2023. This decline, totalling £3.7 billion, highlighted the cautious approach of SMEs in seeking financing.

Regional Variations in Lending: Highlighting South East's Growth

While overall lending experienced a decline, regional variations emerged. 

The southwest and Scotland saw the largest falls in lending, while the southeast (excluding London) witnessed a significant increase of over seven per cent quarter-on-quarter, indicating pockets of growth and opportunity.

Rebound in Loan and Overdraft Applications: Signs of Recovery

In a positive turn, both loan and overdraft applications rebounded in Q1 2023. 

Banks reported quarter-on-quarter growth of 20 per cent and 11 per cent, respectively, reflecting a renewed interest in obtaining financing among SMEs. 

These increases suggest a potential recovery in SME demand for finance.

Loan and Overdraft Approvals: Contrast to End-of-2022 Decline

In contrast to the decline observed at the end of 2022, there was an increase in loan and overdraft approvals during the first quarter. 

This uptick in approvals aligned with the rebound in applications, indicating a growing confidence among lenders in SMEs’ creditworthiness and their ability to repay.

Invoice Finance and Asset-Based Lending: Slower Growth but Resilience

Invoice finance and asset-based lending (IF/ABL) experienced a slower rate of growth in Q1 2023 compared to the previous year. 

However, IF/ABL remained stronger than other forms of finance since the conclusion of government-backed loan schemes in 2021. 

This resilience highlights the important role that specialist working capital finance plays in supporting SMEs.

Importance of Specialist Working Capital Finance for SMEs

The continued robustness in the supply of invoice finance/asset-based lending products, combined with the recovery in demand for overdrafts, underscores the significant role of specialist working capital finance in supporting SMEs. 

These tailored financing solutions provide the necessary capital for SMEs to meet their short-term obligations and seize growth opportunities.

Stability in SME Financial Resources

SMEs maintained stable financial resources in Q1 2023, with overdraft utilization rates and available deposits largely unchanged. 

This stability offers SMEs some flexibility within their existing facilities and deposits, providing support throughout another potentially challenging year.

Conclusion

The first quarter of 2023 showcased the resilience of SMEs as they navigated through challenging economic conditions. 

Despite the decline in gross lending, the rebound in loan and overdraft applications, along with the continued strength of invoice finance and asset-based lending, signals positive signs of recovery. 

SMEs have the opportunity to leverage specialist working capital finance and maintain stability in their financial resources, empowering them to overcome obstacles and seize growth opportunities.

As always, SMES must stay informed and adapt their financial strategies accordingly to thrive in an ever-evolving business landscape.

About Us

Apollo Business Finance is one of the UK’s fastest-growing independent invoice finance lender. We provide businesses of all shapes and sizes with the cash flow support they need to grow, regardless of credit history or past hurdles.

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