The developments in the SME finance markets in the United Kingdom in 2024 reflected the high level of uncertainty both domestically and abroad. Political uncertainty in the United Kingdom increased in the lead up to the General Election in July. Similarly, political uncertainty in the United States rose ahead of the Presidential Election in November. Furthermore, evolving conflicts in the Middle East and Russia’s war of aggression in Ukraine resulted in uncertainty about the economic outlook.
Gross flows of bank lending (excluding overdrafts), the main component of SME finance markets, rose by 5% in 2024 to GBP 62.1 billion in nominal terms. This was the third highest since records began in 2012 after 2020, which had largely been driven by government-guaranteed Covid-19 loans, and 2022. The rise in 2024 was largely due to increased lending by challenger and specialist banks. However, gross repayments exceeded gross lending for the fourth consecutive year, leading to a net lending that was negative. This is despite a fall in gross repayments of 5% to GBP 65.1 billion, the second consecutive fall from the record high in 2022. Nevertheless, the negative net lending of GBP 3 billion was narrower than in 2023 (GBP 9.3 billion). The outstanding stock of bank lending continued to fall in 2024 but remained relatively high at GBP 179.3 billion.
Among the commonly used forms of alternative finance, the use of asset finance rose modestly in 2024, while that of working capital finance was mixed and equity finance fell. Asset finance new business rose by 0.9% to GBP 23.5 billion, a new record high. This was largely driven by increased new business in the business car finance and commercial vehicle finance sectors. In relation to working capital finance, the use of invoice finance and asset-based lending rose by 5% to GBP 11 billion while the value of overdrafts was down by 2% to GBP 6 billion. The British Business Bank’s market intelligence suggests that smaller businesses found it harder to secure new, or increase existing, overdrafts than use other types of working capital finance.
Like overdrafts, the value of SME equity finance declined by 2.5% to GBP 10.8 billion and the number of announced deals was down by 15.1% to 2,048. Following unsustainable increases in valuations during 2021, higher inflation and a tighter monetary environment triggered a downturn in 2022, leading equity investment to revert to lower levels seen prior to the Covid-19 pandemic. The value of alternative finance lending from providers including marketplace, non-bank balance sheet and platform lenders is likely to have risen in 2024. Around GBP 3.4 billion of SME business lending via such providers has been reported. This is up from around GBP 2.5 billion by those providers that the British Business Bank has data for in 2023. The full year results for 2024 of some providers are yet to be published.
The United Kingdom government, the Department for Business and Trade and the British Business Bank will continue to work with a wide range of partners to support businesses across the United Kingdom as they look to invest and grow.