Many small firms continue to face pressures due to supply chain problems and rising costs, says UK Finance

UK Finance’s Business Finance Review for the third quarter of 2021 reveals that many businesses are focusing on the repayment of Government-backed loans which helped them survive the pandemic.

In every region lending is down compared with the period when Government-backed schemes were live but the figures have been broadly stable in the past two quarters. Falls in lending were slightly larger than the UK average in the North East and Yorkshire. although there was some modest growth in the North West, South West and Scotland, the review said.

Gross lending to SMEs (small and medium-sized enterprises) was £5.2 billion in the third quarter of 2021, a figure which is broadly unchanged from the previous quarter. Applications for new loans and overdrafts continued to trend down over the quarter, the report found.

Stephen Pegge, UK Finance’s Managing Director of Commercial Finance, said: “As the economic recovery continued in the third quarter, our finance indicators for SMEs have stabilised in recent quarters.

“Demand for new finance has been relatively subdued compared with that seen last year, as remaining restrictions have been lifted and businesses return to trading more normally.

“The focus for many businesses had now turned to meeting repayment obligations of government-backed loans accessed through the pandemic. Our data points to steady increases in repayments as they fall due, with growth in repayments evident across all sectors.

“However, many businesses will face some headwinds from supply chain bottlenecks and rising input costs. SMEs continue to have headroom within existing facilities, such as overdrafts and invoice finance lines, and high levels of cash deposits which should help meet these challenges.

“There is also flexibility in repayments through the Bounce Back Loan Scheme ‘Pay as you grow’ options.

“For businesses planning future investments the finance sector is ready to support these with commercial lending and the extended Recovery Loan Scheme, which will be available to SMEs into 2022.

“While the recovery will not be without growing pains, financial availability and support from the sector should help SMEs navigate these in the coming quarters.”

Commenting on the outlook, the report said: “There is a largely stable picture for business finance in the third quarter of 2021, continuing the trend of waning demand for new finance, an increasing focus on repayments with businesses retaining a reasonable degree of headroom with cash deposits..

“If the economic recovery is not derailed by recent pandemic developments, we might expect these to be consistent themes in our Business Finance Reviews in the coming quarters.

“However, with some of the headwinds to growth, from supply chain blockages to rising input costs, falling more heavily on some sectors than others, we may begin to see the emergence of some sector differences."

A major question going into 2022 will be whether businesses pick up the baton on growth by increasing their investment plans, the review said.

The review also found “an element of continuing caution” among SMEs about making significant investments, until recovery becomes more firmly entrenched and headwinds subside.