UK small and medium-sized enterprises (SMEs) are seizing the opportunity presented by reduced interest rates, leading to a notable uptick in demand for external funding. This shift signals a promising landscape for investors, as businesses look to refinance, expand, and navigate the evolving economic terrain.
A recent SME Pulse survey conducted by Atom Bank for Q1 2025 reveals that 53% of commercial mortgage brokers have observed an increased appetite for borrowing among their SME clients. This marks a slight decrease from 56% in Q4 2024 but remains a strong indicator of sustained interest. Notably, only about 3% of advisers reported a reduced borrowing appetite, while 44% observed unchanged demand.
The primary catalyst for this heightened borrowing activity is the reduction in interest rates. Over half (57%) of brokers attribute the surge in demand to the lower cost of borrowing, a significant rise from previous surveys. Other contributing factors include increased lender appetite (32%) and improved business confidence (30%).
While property purchases remain the leading reason for borrowing, accounting for 51% of cases, there’s a noticeable shift towards refinancing existing debt and funding business expansion. Refinancing has risen by 6% to 24%, and growth-related borrowing has increased by 5% to 23%. This diversification in borrowing purposes indicates a strategic approach by SMEs to strengthen their financial positions and pursue growth opportunities.
Sector-specific insights from the survey highlight varying impacts of external factors. In the modern industrial sector, 40% of brokers reported that rising energy costs and supply chain disruptions have affected their clients. Conversely, the food and hospitality sector shows resilience, with 43% of brokers noting unchanged or increasing demand for borrowing. Restaurants and cafes lead this trend, with 29% of advisers reporting a rise in demand, followed by pubs and bars (20%) and food manufacturing (13%).
Access to commercial funding has also improved, with fewer than one in four brokers currently finding it difficult to secure funding for their clients. This is a significant improvement from the previous year when about one in three brokers faced challenges. The broader range of lenders and increased lending appetite contribute to this positive development.
