iwoca SME Expert Index: Recession concerns drop by a third in a year, as small businesses demand larger loans

• Small businesses’ recession fears are receding, with SME finance brokers reporting a one-third drop (32%) in recession concerns among SMEs since Q4 2022
• Inflation remains stubbornly high on the list of SME concerns going into 2024, with nearly half (45%) of brokers identifying high business costs as SMEs’ prime worry –– the highest proportion since the end of 2022
• As recession fears fade, more than one in four (26%) finance brokers report that SMEs’ most-requested loan amount in Q4 2023 was over £100,000, the highest since Q3 2022
• Despite growing demand for high-value finance, three in four (77%) brokers say high street lenders are reducing their appetite for funding SMEs
  

SME anxieties regarding a potential recession have eased by a third (32%) since  Q4 2022, though inflation concerns remain, according to iwoca’s Q4 2023 SME Expert Index. 

Under half (49%) of SME finance brokers surveyed report their SME clients having any recession fears––a significant drop compared to 73% in Q4 2022.

Nonetheless, economic fears persist: inflation remains disquieting to SMEs going into 2024, with nearly half (45%) of brokers suggesting it is SMEs’ main concern, compared to just a third (32%) of brokers in Q4 2022. 

Demand for larger loans climbing

As concerns around a recession fall, over a quarter (26%) of SME finance experts say that small businesses are mostly seeking higher-value loans of over £100,000 - up from 15% the previous quarter -  suggesting the UK’s enterprises may be tending to growth ambitions.

Demand for smaller loans is waning in line with SMEs’ focus on larger loans, suggesting growing demand for longer-term funding, as opposed to smaller loans to ease short-term cash flow concerns. In Q4, just two in five (40%) brokers said loans of up to £50,000 were SMEs’ most popular choice, an 8pp drop since Q3.

Alternative lenders pick up the slack 

Despite growing demand for high-value finance, SME financing options at traditional banks are being scaled back––three in four (77%) brokers note that high street lenders are reducing their appetite for funding SMEs. 

In response to the tightening lending environment, almost three-quarters (71%) of brokers now submit a majority of their SME clients’ loan applications to alternative lenders. 

Dan Guest, Director & Asset Finance Specialist, TAFCO Ltd said: “The market as a whole has bounced back after the continuous doom and gloom expected in 2023 - this has now filtered down to SMEs who have gained renewed confidence. At TAFCO we have noticed a rise in loans above £75,000 with a desire to settle higher rate debt, consolidate smaller loans and reduce outstanding terms on the back of an increased order book. We expect this to continue given the rate decrease across the market, from both unsecured and secured Hire Purchase debt. 

“Our strategy has always been to utilise specialist lenders outside of the high street to ensure that our customers are supported across all of their requirements; the creditworthiness and requirements from high street lenders has become restrictive to many businesses.” 

Colin Goldstein, Commercial Growth Director of iwoca, added: “SMEs appear to be in agreement with the Bank of England's cautious stance on inflation, yet despite worries about a potential eurozone recession, UK small business owners continue to hold an optimistic outlook. The SME lending market is strengthening, with rising applications for larger loans and falling inflation hinting at a brighter future. 

“However, a number of challenges remain, especially with high street banks showing limited enthusiasm for lending. Stability and support are now essential if we’re to see SMEs turn their optimism into growth.”