Taken as a whole, Atom bank’s SME Pulse for Q2 shows the current robust health of demand in the commercial market.
Around 95% of the brokers polled said they were seeing unchanged or increased demand for external funding from their SME clients at the moment. From this we can perhaps conclude that significant numbers of businesses are pushing on with their growth aspirations, raising funding in order to secure new premises or expand their propositions, laying the foundations for further success in the months and years to come.
Despite this overall strength, the data does show a modest softening in demand compared to the previous quarter. The percentage of brokers reporting increased client demand for funding has decreased from 53% in Q1 to 46% in Q2.
Conversely, the proportion of brokers noting unchanged demand has risen from 44% to 49% over the same period. This shift indicates a slight moderation in the pace of growth in funding requests, though the market remains largely buoyant.
Brokers report a growing apprehension among their SME clients regarding prevailing economic uncertainties, which appears to be fostering a “wait and see” approach to securing new financing.
This sentiment aligns with findings from other authoritative studies on business attitudes, notably the Business Confidence Monitor published by the Institute of Chartered Accountants in England and Wales (ICAEW).
The most recent ICAEW study marks the fourth consecutive quarter of declining business sentiment, attributing this downturn to several key factors. These include a deceleration in domestic sales, diminished export expectations, and the persistent burden of taxation, all of which are collectively contributing to a more cautious borrowing environment.
The current economic landscape presents significant complexities for many businesses, both those operating domestically and internationally. These multifaceted challenges are prompting companies to exercise greater caution and undertake more thorough consideration before committing to additional borrowing.
BREAKING DOWN BARRIERS
One element of previous editions of the Pulse that has always been a concern has been the question of accessibility. Each quarter we ask brokers about how easy they are finding it to source suitable finance for the businesses they are advising, offering us a useful insight into how well the industry is delivering for would-be borrowers.
The obvious positive has been the fact that for some time the proportion of brokers who have had issues accessing funding on behalf of their clients has been trending downwards.
A year ago we were seeing more than a third of brokers facing barriers, but in this latest edition the proportion has dropped to just 20%, the lowest level since we launched the Pulse in 2023.
This is good progress, and suggests lenders have recognised how more flexible criteria can open doors to businesses who were previously shut out from external funding. However, this still represents a large number of business borrowers whose ambitions are being limited. It’s vital for lenders to investigate which areas are underserved, and where these gaps can be addressed.
DELIVERING FOR STUDENTS
The latest edition of the Pulse delves into brokers’ direct experiences with Purpose-Built Student Accommodation (PBSA), a sector of increasing interest for residential property investors seeking higher yields.
A significant proportion of brokers are observing a tangible impact on their activity levels, with over a quarter reporting an increase in demand from their property investor clients specifically for funding to facilitate expansion within the PBSA sector.
Around a fifth of the brokers we spoke to said that PBSA now accounts for between 10% and 20% of their business, an eye-opening figure. HMO numbers have dropped sharply in recent years according to data from the Office for National Statistics, a form of property that has long been a go-to for students and property investors alike.
Combined with the higher expectations of students regarding the quality of their accommodation, the door has been opened for PBSA. In order to support this trend, we have introduced a host of improvements to our PBSA proposition, allowing investors to borrow at higher maximum LTVs and more attractive terms than comparable HMO cases.
WHAT LIES AHEAD?
Our experience with sectors like PBSA show that for all of the current uncertainty in the economy, there are areas where businesses and investors are keen to push forward.
Should the coming months bring greater stability, it’s reasonable to expect a corresponding upswing in demand for commercial finance.
To effectively support SMEs across the country and the brokers who advise them, lenders must be prepared to step up with flexible funding solutions, unburdened by unnecessary or restrictive terms.
