Concern among small and medium-sized enterprises (SMEs) around a potential recession have eased by a third (32%), new research by iwoca has suggested.

The group’s Q4 2023 SME Expert Index found that just under half (49%) of SME finance brokers reported their SME clients having any recession fears – a significant fall compared to 73% in Q4 2022.

iwoca’s survey was based on over 100 UK SME finance brokers who collectively submit over 2,000 small business finance applications a month.

The group did report that economic fears are still persisting, with inflation remaining a worry to SMEs going into 2024. The study found that 45% of brokers suggested it is SMEs’ main concern, compared to just 32% of brokers in the Q4 2022 research.

As concerns around a recession fall, over a quarter (26%) of SME finance experts said that small businesses are mostly seeking higher-value loans of over £100,000 – a level up from 15% the previous quarter – which iwoca said could suggest the UK’s enterprises may be tending to growth ambitions.

Demand for smaller loans is waning in line with SMEs’ focus on larger loans, suggesting growing demand for longer-term funding, as opposed to smaller loans to ease short-term cash flow concerns. In Q4, just two in five (40%) brokers said loans of up to £50,000 were the most popular choice among SMEs, an eight percentage point drop since Q3.

Director and asset finance specialist at TAFCO Ltd, Dan Guest, said: “The market as a whole has bounced back after the continuous doom and gloom expected in 2023 – this has now filtered down to SMEs who have gained renewed confidence.”

Despite growing demand for high-value finance, SME financing options at traditional banks are being scaled back, with the study revealing that three in four (77%) brokers believe that high street lenders are reducing their appetite for funding SMEs.

In response to the tightening lending environment, 71% of brokers now submit a majority of their SME clients’ loan applications to alternative lenders.

“SMEs appear to be in agreement with the Bank of England’s cautious stance on inflation, yet despite worries about a potential eurozone recession, UK small business owners continue to hold an optimistic outlook,” added commercial growth director of iwoca, Colin Goldstein.

“The SME lending market is strengthening, with rising applications for larger loans and falling inflation hinting at a brighter future.

“However, a number of challenges remain, especially with high street banks showing limited enthusiasm for lending. Stability and support are now essential if we’re to see SMEs turn their optimism into growth.”

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