Business owners putting borrowing plans on hold ahead of Budget, reveals Atom bank’s SME Pulse

10 October 2024

Economic uncertainty and the prospect of tax changes being introduced in the upcoming Budget are behind a slowing appetite for external funding, Atom bank’s ‘SME Pulse’ for Q3 2024 has revealed.

The quarterly poll of commercial brokers found that there has been a drop off in demand from SMEs for funding.

While nearly half (47%) of brokers reported seeing increased interest from their commercial clients, this is down from the 62% and 63% respectively in the last two editions of the SME Pulse. In addition, the proportion of brokers noting a decline in appetite from their SME clients has grown to 15% in Q3 from 3% in the second quarter.

Economic uncertainty

The vast majority of commercial brokers (80%) suggested that economic uncertainty is a big factor in this decline, with the upcoming Budget cited by many as the underlying influence.

Individual brokers told Atom bank that their clients had put borrowing plans on hold ahead of the Budget, so that they are better informed about whether there will be any impact on their tax liabilities or staffing costs.

Beyond the Budget, higher interest rates (60%) and the appetite of lenders to finance deals (60%) were also pinpointed as having had a detrimental impact on borrowing appetite.

The survey revealed that a significant proportion of business owners are feeling less confident since the General Election and the base rate cut.

Almost one in three (29%) brokers said their business clients were less confident, compared with one in five (19%) who are now more confident. The majority (52%) are unsure, and waiting to see how the Budget and future base rate cuts play out.

While some business owners may be exercising caution, the Pulse study found that the Budget was also a consideration for those pushing ahead with lending. In a separate question, over a fifth (22%) of commercial brokers reported funding demands had increased following the general election, with a number of SMEs looking to get their funding in place ahead of the Budget.

Property purchases driving activity

Among those looking to borrow, property purchase remains the primary reason. More than half (54%) of brokers taking part in the survey cited it as the most common reason for borrowing, up from 44% of brokers in the last quarter.

Growth and business expansion has moved into second place, having been highlighted by a fifth (22%) of brokers, while debt refinancing has dropped from being the main purpose of borrowing for 28% in Q2 of brokers to 21% this quarter.

Accessing finance becoming tougher

The latest SME Pulse survey for Q3 revealed that accessing finance remains a concern for brokers.

The proportion of brokers reporting it is difficult to secure finance for their clients grew to 32% from 31%, which itself was up by 8% on the previous survey. Brokers suggested that high interest rates and stricter lending criteria was behind these increasing difficulties.

This trend is concerning, despite the fact that the majority of brokers surveyed (68%) did not report issues in accessing funding for their clients.

David Castling, Head of Intermediary Distribution at Atom bank, commented:

”It is encouraging to see so many commercial brokers reporting growing client demand. However, the impending Budget has created a degree of uncertainty that has caused some businesses to delay their plans. Ideally, once the Budget is announced, this uncertainty will dissipate, enabling business owners to confidently pursue their ambitions.

“Accessibility remains a concern. The fact that nearly one in three brokers face challenges in securing funding for their clients is worrying. It emphasises the importance of brokers collaborating closely with lenders who have the flexibility and appetite required to deliver funds to the businesses who need it.”