Banks and finance providers approved £15.7 billion in new lending to small and medium-sized businesses in London in 2020, according to figures from UK Finance. This means that new lending more than tripled in 2020 (an increase of 239 per cent) from £4.6 billion in 2019, underscoring the significant rise in demand for finance as businesses responded to challenges posed by the pandemic.
Government-backed lending schemes, alongside other loan and overdraft facilities, have helped SMEs to navigate the uncertainty of the pandemic and develop new products and business models. While some businesses have needed to use this money, some SMEs have put it aside for the future. At the end of 2020, nationwide deposits were 28 per cent higher than at the end of 2019, which suggests firms are leaving cash in reserve to support activity as the economy reopens.
Figures published today in UK Finance’s Business Finance Review show that the number of SME loans and overdrafts approved peaked in the second quarter of 2020 at 184 per thousand businesses in London. This was notably above the region’s average during 2015 to 2019 of 16 approvals per thousand businesses, reflecting the substantial shift in demand for finance as SMEs responded to lockdowns and changes to customer demand.
UK Finance data also reveals that the proportion of UK lending approved for SMEs in London reached 21.3 per cent, with 23.5 per cent of the value of approvals for finance provided to firms in the area.
Across Great Britain, gross lending to SMEs totalled £63.6 billion in 2020, 162 per cent higher than in 2019. Over half of the value of this lending – £34.5 billion – took place in the second quarter of the year as the banking and finance industry provided immediate support to businesses affected by the pandemic. Whilst lending levels were not so high in subsequent quarters, £9.6 billion was approved in Q4 – still 65 per cent higher than Q4 2019.
Stephen Pegge, Managing Director of Commercial Finance said, “The enormous disruption faced by SMEs in the past year has been matched with a significant increase in the supply of finance, particularly through government-backed schemes. This lending has provided an important lifeline for businesses to manage cashflow and sustain activity through the successive lockdowns.
“Some SMEs have entered 2021 with financial headroom in the form of increased deposits and flexibility in existing overdraft, invoice and asset-based lending facilities. However, for many businesses, and some specific sectors, there may be extended disruption and financial difficulty ahead. The banking and finance industry will continue to support businesses across the country through these times to help them trade and invest for recovery.”