Post-COVID business confidence remains strong as SMEs consider their options for future funding

  • Nearly eight out of ten SMEs say they are confident of a boost to trade over next three months
  • A significant number of firms are relying on overdraft and credit cards for their borrowing needs
  • 14% of SMEs say that their main business bank can’t support their borrowing needs

Business confidence remains high among the UK’s SMEs as they continue to recover from the impact of COVID, according to new research by Recognise Bank. Almost eight out of ten (78%) of all respondents said they were either ‘confident’ or ‘very confident’ their business would experience a boost in trade over the next three months now that most restrictions have been eased.

The research also found that companies are looking at their funding options as they invest for growth in their businesses over the coming months. The research also found that while the biggest proportion of SMEs will turn to their own bank for business lending, a significant number will rely on potentially expensive overdrafts and credit cards for borrowing.

This comes as Recognise Bank’s research also found that 14% of SMEs said their main bank can’t support their borrowing needs.

In terms of business investment priorities over the next three-month period, Recognise Bank found:

  • 24% of SMEs said they plan to purchase new equipment (including IT)
  • 24% plan to purchase protective equipment for staff
  • 21% of all SMEs said they want to buy new stock
  • 19% would like to add further products and services
  • 18% of firms intend to buy protective measures for customers
  • 17% of SMEs plan to invest in e-commerce technology to trade online
  • 17% of firms plan to recruit more staff

When it comes to funding their business investment plans, the number of companies turning to their bank for a loan increased slightly, at 16% compared with 15% in May when the research was last carried out. Recognise Bank also found that 15% of SMEs said they would use cash from their business surplus, a fall from 20% in May.

SMEs are now also less likely to fund their activities using government loan schemes, dropping to 11% of those surveyed, compared with 17% in May.

However, the use of an overdraft by SMEs to fund investment in the business rose significantly to 12% in the latest research, compared with 7% in May, while the use of credit cards by SMEs also increased, up to 11% compared with 8% in May.

Borrowing from an alternative lender, rather than their own bank, was the preferred choice for 6% of SMEs surveyed, pointing to a sense of dissatisfaction among a significant number of respondents. When asked about the support they receive from their own business bank for their borrowing needs, while a third (33%) of SMEs said their bank was always able to support them, a third (33%) said they were only able to support them sometimes.

In comparison, 14% of SMEs told Recognise that their main bank was never able to provide the support they required for their borrowing needs. This rose to 20% for SME businesses within the retail sector. Just over one in ten (11%) of SMEs said they would always use an alternative lender rather than their own bank for their borrowing needs.

Angela Norman, Head of Corporate Development at Recognise Bank, said: “It’s positive to see that the vast majority of SMEs are confident they can continue to boost their business activity now that COVID restrictions are being eased, because it has undoubtedly been a tough year and a half for many firms. That positivity is manifesting itself in terms of strong growth plans among SMEs.

“However, the number of firms turning to overdrafts and credit cards to fund this business investment is worrying as this route is likely to be much more expensive than other forms of borrowing. The fact that 14% of SMEs feel their main business bank cannot support their borrowing needs suggests there are a lot of firms out there who need advisers to help them find a better funding solution for their business.”

Recognise provides unregulated lending to the UK’s SME sector, including Commercial Mortgages, Bridging Loans, Private Practice Loans and Working Capital Loans with professional buy-to-let mortgages to follow soon. The bank has offices in London, Manchester, Birmingham and Leeds, with a network of Business Development Managers backed up by the latest cloud-based technology to provide quick lending decisions and fast access to funds.

The bank aims to provide more than £1.5 billion of business lending over the next five years, with plans to also launch both business and personal savings accounts later this year.

Recognise’s research and analysis was carried out in August 2021 among a nationally representative sample of 500 senior decision makers in British SMEs by 3Gem.