Demand from SMEs for lending is set to increase in the next 12 months, as 89% of businesses look to borrow to stay afloat, cover overheads or refinance existing debt, according to a recent survey from Allica Bank.

The bank polled 150 established businesses (those with 10-100 employees) on their outlook for 2023. 43% said they will need to borrow simply to survive, while 37% are doing so to refinance existing debt.

It follows the British Business Bank reporting that while total debt held by SMEs reached new highs during the pandemic in 2020, loan repayments have been becoming a smaller share of business cashflows as turnovers have started to recover.”

Allica Bank claims that the lack of information available to businesses about financial products makes this trend especially concerning, with 10% of respondents saying they needed more clarity about borrowing and 17% saying they wanted a greater selection of loan products to choose from.

The bank says this could lead to a growing number of businesses becoming over-leveraged, or missing opportunities to support growth. Recessions often lead to a higher proportion of defaults on business loans, while the Coronavirus Business Interruption Loans (CBILS) is already seeing an 8% default rate, amounting to over £6 billion, according to the government’s latest report.

Conrad Ford, chief product officer at Allica Bank, said: “It’s the responsibility of banks to give businesses the best chance of surviving and thriving through this recession by ensuring they can make informed choices.

“This needs to be backed up with fast and clear responses to loan applications, so that businesses aren’t waiting weeks for an answer. While banks should actually look individually at each application and assess each business on their own merits and opportunities.

“Fewer and fewer banks still offer their customers a proper relationship manager – someone that can walk business owners through their available options and help them make an application. At Allica Bank, we make relationship managers a core part of our offering for our business customers, because we know how valuable their expertise can be. Especially as the economy is expected to enter recession.

“We also recommend businesses consider speaking to their accountant or a commercial finance broker for support when looking at their finance options.”