Atom Bank’s latest SME Pulse found that the share of advisers saying demand for funding had increased dropped from 61% of respondents to a third, while the advisers who said this stabilised fell from 61% in Q4 to 54% in Q1.
Atom Bank said this represented a record high for unchanged demand and a record low for rising demand since the report launched in 2023.
Some 86% of brokers put this down to either higher interest rates or economic uncertainty.
Among those saying demand for commercial funding had increased, 58% of brokers said this was due to more product options and 32% said it was because of lender appetite.
When asked about the conflict in the Middle East specifically, 49% of brokers said their clients were worried about the fallout, while just 23% were unfazed.
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More than half – 51% – of brokers said the conflict made it harder to advise clients on the outlook for external finance.
Regarding interest rates, 65% of brokers said the revised outlook for interest rate rises had led to a direct decline in demand for funding.
Tom Renwick, head of business lending at Atom Bank, said: “The fact that the majority of brokers are reporting at least an unchanged level of demand is encouraging, showing that businesses are confident about pursuing their own ambitions.
“Nonetheless, it is striking that demand has plateaued, reflecting the impact that global events – and the knock-on effect they can have on interest rate expectations – can have on business borrowing. A period of stability would provide the certainty many businesses need in order to push forward with their growth plans.”
Potential opportunities in small loan lending
Brokers were also asked about the small loans market, and 47% said they received enquiries from borrowers seeking between £100,000 and £250,000 on at least a weekly basis. A further 19% said they received such enquiries daily.
Respondents suggested that competition in this part of the market could be better, however, with 83% saying more lenders should enter this space.
Atom Bank has lowered the minimum loan size for commercial mortgages twice this year, initially bringing it down to £200,000, then later to £100,000 to support those in need of smaller loans.
Renwick added: “It’s also revealing to see just how significant demand is for small loans currently. For small loans to represent such a notable portion of commercial brokers’ enquiries is eye-opening, and given the shortage of lenders active in this space, there is a real danger that quality SMEs are having to postpone, if not abandon, pursuing opportunities.
“As an industry, we need to ensure these businesses are properly catered for, and have access to the loans [that] can have a transformative impact on their future prospects, even if the sums involved are more modest.”
Access to finance improves
The last few SME Pulse reports have suggested a trend of improving access to funding, with the share of brokers citing issues for the clients steadily declining.
However, 19% brokers responding to the Q1 survey said they came across issues when accessing funding, up from 11% in the previous edition.
Brokers said there were more active lenders that provided better choices, but some said the underwriting process had become more challenging, particularly around affordability assessments.
