Almost eight in 10 (78%) UK SMEs are either “confident” or “very confident” their business will experience a boost in trade over the next three months now that most pandemic restrictions have eased, a new study from Recognise Bank has found.

The research suggested that companies are looking at their funding options as they invest for growth in their businesses over the coming months.

Recognise Bank’s findings, based on a nationally representative sample of 500 senior decision makers in UK SMEs during August, also revealed that while the biggest proportion of SMEs will turn to their own bank for business lending, a significant number will rely on overdrafts and credit cards for borrowing.

This comes as the research also found that 14% of SMEs said their main bank can’t support their borrowing needs.

When it comes to funding their business investment plans, the number of companies turning to their bank for a loan increased slightly, at 16% compared with 15% in May when the research was last carried out. Recognise Bank also found that 15% of SMEs said they would use cash from their business surplus, which fell from 20% in May.

Recognise Bank head of corporate development, Angela Norman, commented: “It’s positive to see that the vast majority of SMEs are confident they can continue to boost their business activity now that COVID restrictions are being eased, because it has undoubtedly been a tough year and a half for many firms. That positivity is manifesting itself in terms of strong growth plans among SMEs.

“However, the number of firms turning to overdrafts and credit cards to fund this business investment is worrying as this route is likely to be much more expensive than other forms of borrowing.”

The study indicated that the use of an overdraft by SMEs to fund investment in the business rose significantly to 12% compared with 7% in May, while the use of credit cards by SMEs also increased, up to 11% compared with 8% in May.

Borrowing from an alternative lender, rather than their own bank, was the preferred choice for 6% of SMEs surveyed.

Furthermore, 14% of SMEs told Recognise Bank that their main bank was never able to provide the support they required for their borrowing needs, and this climbed to 20% for SME businesses within the retail sector. Just over one in ten (11%) of SMEs said they would always use an alternative lender rather than their own bank for their borrowing needs.

“The fact that 14% of SMEs feel their main business bank cannot support their borrowing needs suggests there are a lot of firms out there who need advisers to help them find a better funding solution for their business,” Norman added.

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