Over the course of the last year, confidence amongst small to medium-sized enterprises (SMEs) went into free fall, with UK Finance statistics reporting an all-time low in December at 39%. The expectation is that this level of pessimism won’t decrease anytime soon, or at least until there is some clarity around the current political and economic situation in the UK.
Whilst the uncertainty around Brexit contributed largely to this lack of confidence amongst growing businesses, lenders providing loans appear unperturbed with the potential economic outlook and continue with their approach of ‘business-as-usual’ despite predictions that access to funding may start to show early signs of tightening from the institutional lenders and investors who sit behind them.
According to UK Finance, SME loan approval rates remained high with new loans and overdrafts worth £7 billion approved in Q3 alone, bringing the total value of loans to £101 billion. On average, 8 out of every 10 loan applications continue to be approved - a quite staggering statistic.
So why then, are SMEs starting to voice less appetite for accessing finance in the future?
For starters, many SMEs are likely to exercise caution given that there are many questions around how the UK will leave the EU and what impact this may have on international trade, either in respect of buying or selling overseas.
The direct impact of Brexit still remains unknown for many SMEs, but since the turn of the year the ‘what if’ questions are clearly starting to resonate amongst many owner-managed businesses. These questions revolve around the potential for imported goods to become more expensive and whether this can be passed on to customers. Additionally there are questions around the impact on competitiveness and profitability. Other questions are around the impact on the whole supply chain and customer confidence across the board with many wondering whether there be a financial tsunami that will see a general downturn and if this were to happen, what contingency measures would need to be made in order to weather any storm coming around the corner.
In light of the above, if UK SMEs need to effectively ‘batten down the hatches’, then accessing new finance isn’t going to be a priority in the short term. With the uncertainties that exist, it makes little sense for businesses to increase their debt burden at a time when they are unsure as to whether they will be able to service it should a downturn play out post-Brexit.