Gross lending to SMEs was £5.2 billion in Q2 2021, down from £7.6 billion in Q1 2021, reflecting declining demand for new funding and falling applications according to latest analysis by UK Finance.

The research showed that weaker demand led to gross lending continuing to decline across all regions and sectors.

Whilst repayments accelerated in Q2, reaching a series high in June as repayments for government-backed loans began and that demand for other finance remains muted, with overdraft approvals close to historic lows and utilisation rates lower than before the pandemic.

The total number of IF/ABL clients reduced marginally but overall client turnover recovered strongly and advances also began to rise and SME deposits rise further over the quarter to stand 13 per cent higher than a year ago.

Stephen Pegge, Managing Director of Commercial Finance said “With the economy reopening in the second quarter and more normal trading conditions in prospect, the finance picture for SMEs has shifted from last year’s rapid increase in borrowing, driven by government-backed schemes, to managing repayment obligations.”

“The latest data in our Business Finance Review, as well as other survey data, point to demand for new lending to deal with the pandemic having been largely satisfied. Demand for loans, overdrafts and other finance products has dropped from last year’s peak to levels closer to that seen before the pandemic.”

“Over a year after government-backed support was introduced, repayments are falling due and SME loan repayments have been accelerating as a result. Industry feedback indicates that most businesses are meeting their obligations or have arrangements in place to manage them, while the recovery takes hold.”

“Nevertheless, some concerns about sustaining this are inevitable as some uncertainty about future growth prospects remains. While many SMEs have record levels of deposit reserves and headroom flexibility in existing facilities, those whose resources become stretched should always discuss options for forbearance with the lender. And for those with growth ambitions, funding is available to support expansion and investment.”