"Overall use of finance by SMEs is back in line with 2019 levels, but we are still seeing caution around borrowing, in part as a result of higher interest rates."
- Carl Philips, director at BVA BDRC
So far in 2024 SMEs are optimistic and focused on growth and innovation, according to the latest SME Finance Monitor report from BVA BDRC, commissioned by UK Finance.
However, there remain some concerns around costs and the ability to raise finance, as well as barriers to international trade, which were hindering the ability to expand.
The report shows that 43% of SMEs were using external financing, with 20% still paying back government-backed pandemic loans.
Of those surveyed, 14% of all SMEs using finance were worried about repaying. The impact that concern about finance has on the business is becoming more acute over time – SMEs are increasingly likely to say that it is impacting how much they can grow the business and how much they can invest and recruit/develop staff. Positively, a quarter of SMEs with repayment concerns had spoken to their bank, and half of those who had spoken to their lender were satisfied with the outcome.
The impact of the post-Brexit trading environment was still being felt, with one in three SMEs feeling that they had been negatively impacted by the new trading arrangements with the EU, increasing by size of SME and among those trading internationally. 64% said that there had been no impact, while 2% reported a positive impact, proportions which have changed very little since 2021.
The overall mood amongst SMEs was good, with half planning to grow and two-fifths planning to be innovative, sentiments which were back to or exceeding pre-pandemic norms.
In Q2 2020 when this metric was first included, 25% of SMEs described themselves as being in a 'good' mood about their business. Since Q4 2021 around six in 10 SMEs had consistently been in a ‘good’ mood and in Q2 2024 57% were in a good mood overall, increasing by the size of SME from 56% for those with zero employees to 78% of those with 50-249 employees.
Carl Philips, director at BVA BDRC, said: “Overall use of finance by SMEs is back in line with 2019 levels, but we are still seeing caution around borrowing, in part as a result of higher interest rates.
“The majority of SMEs (86%) are basing their plans around what they can afford, with uncertainty around the future casting a shadow. The highest levels of concern around financing were found in smaller and younger SMEs, with higher risk profiles, but the good news for entrepreneurs across the country was that two fifths (42%) had the long-term ambition to grow.
“The survey was undertaken ahead of the general election and businesses across the country will be curious to see what, if any, changes lie ahead in 2026, when the implementation of the trade agreement with the EU is due to be reviewed.
“This aside, we have seen a steady increase in SMEs who are trading internationally, from 14% in 2016 to 20% now, indicating that they are learning how to work under the current system.
“While there is optimism within the SME sector, there are also fears around being able to secure the funds needed to grow in a period where costs remain high.
“As the new government finds its feet, many SMEs are likely to find reassurance in the current period of stability, although many questions have been raised by the Autumn Statement which may be putting plans on pause.”
