This week we hosted our latest Breakfast and Brainfood with Vested event and welcomed back Shiona Davies, author of the BVA BDRC SME Finance Monitor to update us all on today’s SME landscape. As a core contributor to our economy, understanding their outlook, priorities and challenges is crucial to understanding what they want and need from the financial services industry.

Whilst the impact of the pandemic has already started to wane, SMEs are facing new challenges that are building around them – including increased costs, challenges hiring staff and economic uncertainty. We delved into some of the topics and themes top of mind for SMEs as they look ahead to 2023.

Optimism in the face of challenge

Despite the turbulence surrounding them, SMEs seem to be, by nature, an optimistic group. Whilst the pandemic was a strong test of this outlook they are feeling positive, ambitious and confident. When it comes to the challenges they are facing, for 37% of SMEs  increasing costs are the top barrier to growth, followed closely by the economic climate at 31%. 

Whilst SMEs sentiment around trading with the EU and Brexit has changed over recent years, seven in10 SMEs currently report it is having no impact on their business. 

Resourcing through crises

When it comes to preparing for potential future challenges, it is clear that SMEs are keeping a close eye on their finances. The proportion of SMEs using more external finance than pre-pandemic has halved since the start of 2021, but one in 10 still has more debt than before the pandemic started. As the impact of the current economic environment is truly felt by SMEs, understanding their financial needs, as they quickly jump from one crisis to another will be crucial to ensuring their continued health, prosperity and optimism.

Despite the external environment and the challenges they face, not all SMEs use, or want to use, external finance.  During the pandemic the necessity of borrowing increased, but the recent signs are that the increased awareness of and need for external finance during the pandemic has not resulted in a more general willingness to use finance. 

Looking ahead

It’s not surprising that SMEs ambition was badly affected in 2020 with the global pandemic but through the end of 2021 and into this year, the ambition to deliver growth has grown. Pre-pandemic one in 4 of all SMEs had grown and planned to do so again in the coming year, this has now reached 43%.

As we enter 2023, SMEs will face many external and internal challenges but their optimism and appetite to grow will enable them to tackle these challenges head on and weather the upcoming storms.

To learn more about SMEs and the BVA BDRC SME Finance Monitor please visit their website. 

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