2023 has been marked by resilience and adaptation amongst the SME community, particularly in SME lending trends. Faced with a fluctuating economy, SMEs were agile, balancing cashflow with investment, and responding to the changing needs of the market. As many contended with the pay-back of Covid recovery schemes, the year began with inflation levels reaching an all-time high, soaring energy bills, a cost of living crisis and seven Bank of England base rate rises.
Businesses that wanted to move forward, needed to do so while still staying on top of the day-to-day finances. That’s no mean feat. Incredibly, despite the outlook and turbulence of the year, confidence began to bubble away in the SME community.
A shift in financing
Predicting the future is a risky business. In the last few years we’ve become conditioned to expect the unexpected. So it was difficult to anticipate what 2024 would bring. What I am fairly certain of, however, is that lingering effects of the pandemic and the war in Ukraine, such as supply chain disruptions and labour shortages, would continue to impact businesses, influencing their financing needs.
SME lending trends had evolved significantly. More businesses are integrating alternative finance into their long-term finance strategies and I expect to see this continue. Some key shifts lie in cashflow solutions, like refinancing, where we continue to see this as a tool used by businesses to maximise the value of their assets and unlock vital funds. It’s a trend I expect to continue, not least because it allows businesses to access working while still managing cashflow, but it also offers headroom in an uncertain economic landscape.
A more holistic approach to finance
As we look to the future, the sentiment among businesses is cautiously optimistic. While there are concerns about the further economic headwinds, there's also a sense of resilience and a willingness to adapt. Businesses are increasingly looking to alternative finance providers to navigate the uncertainties and support their growth ambitions.
The year ahead is likely to see a continuation of trends, with technology and sustainability remaining key drivers, but access to working capital being essential in keeping operations moving smoothly. We anticipate further appetite for finance solutions that align and flex with the evolving needs of businesses. That’s where we see multi-product solutions coming in.
The rise in asset-based lending solutions offers a lifeline to companies that have significant capital tied up in assets, and with the support of a lender, businesses have access to a vital source of working capital, which is crucial in times of cash flow challenges or rapid growth. What’s more, asset-based lending can be tailored and can be customised to the specific needs of a business, making it all the more attractive as a finance solution.
This trend, I believe, reflects a broader movement within the alternative finance industry towards more adaptable and responsive finance solutions, while supporting SMEs through various stages of their growth and in diverse market conditions.
Accessible finance when it’s needed most
In a year when traditional lending became predictably risk averse, SMEs could turn to alternative finance for a myriad of solutions - invoice finance to ease cashflow challenges, business loans to inject capital and asset finance to invest in leading technology and accelerate operations.
The success of our transactions in structuring flexible asset-based-lending facilities and combining financial offerings has enabled businesses to generate funds when it’s needed most. When we facilitated a £900k management buy-in for a wastewater service provider, Active Pumps, we packaged an invoice finance facility, with a property-backed loan, and asset finance agreement. All of this generated the funds required to facilitate the MBI as well as providing much-needed headroom for the future.
Where 2023 has been a year of significant learning and growth for the SME community, the challenges faced have only strengthened their appetite to access flexible and innovative financial solutions from their alternative finance partners. As we stepped into 2024, the industry stood ready to support the recovery and growth of businesses, navigating through the uncertainties with resilience and agility.
While the next year felt unpredictable, one thing was certain. The alternative finance market would continue to play a pivotal role in shaping the economic landscape and marking a new era for SME financing.