Less than half (49%) of SME finance brokers surveyed indicate that their SME clients harbour recession fears, a notable decrease from 73% in the same period the previous year.

However, economic anxieties continue: inflation still poses a significant worry for SMEs as they approach 2024, with nearly half (45%) of brokers identifying it as the primary concern for SMEs, an increase from just a third (32%) of brokers in the fourth quarter of 2022.

As recession-related fears diminish, more than a quarter (26%) of SME finance specialists report that small businesses are increasingly seeking higher-value loans exceeding £100,000, up from 15% in the preceding quarter. This trend suggests that the UK's small and medium enterprises are gearing towards growth ambitions.

Concurrently, the demand for smaller loans is diminishing as SMEs shift their focus towards securing larger loans, indicative of a rising demand for longer-term financing solutions rather than short-term cash flow alleviations. In the final quarter, only two in five (40%) brokers reported that loans up to £50,000 were the most sought-after by SMEs, marking an 8 percentage point decline from the third quarter.

With the increasing demand for substantial financial support, traditional banks are retracting their offerings for SME financing – three-quarters (77%) of brokers observe a reduced willingness from high street lenders to fund SMEs.

In light of the constricting lending landscape, almost three-quarters (71%) of brokers are now directing the majority of their SME clients' loan applications towards alternative lenders, indicating a shift in the financing dynamics for SMEs.

Dan Guest, Director and Asset Finance Specialist, TAFCO Ltd 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. At TAFCO we have noticed a rise in loans above £75,000 with a desire to settle higher rate debt, consolidate smaller loans and reduce outstanding terms on the back of an increased order book. We expect this to continue given the rate decrease across the market, from both unsecured and secured Hire Purchase debt.

“Our strategy has always been to utilise specialist lenders outside of the high street to ensure that our customers are supported across all of their requirements; the creditworthiness and requirements from high street lenders has become restrictive to many businesses.”

Colin Goldstein, Commercial Growth Director of iwoca, added: “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. 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.”