What happened in 2024 from a lending and funding perspective?
· Posted on: January 21st 2025 · read
The UK financial landscape saw notable shifts in 2024, marking a renewed optimism and growth opportunities for businesses after the challenges of 2022 and 2023 post-COVID. However, despite these positive developments, challenges have persisted including high-profile market exits from certain banks and economic pressures such as changes in the recent UK Autumn Budget. Gregory Taylor, Head of Banking and Finance at MHA explores the key trends of 2024 and the outlook for the year ahead.
2024 began strongly for two-thirds of its duration, marked by an increase in funding applications from businesses and higher approval rates from lenders, including high street banks. Recent years have been a challenge post-covid, as 2022 and 2023 were subdued due to lingering COVID loans and rising interest rates which dampened lending activity. However, in 2024 SMEs and corporates benefitting from the banks’ renewed willingness to lend
Optimism grew among business owners and management teams, which was bolstered by expectations of an interest rate cut. Although the reduction arrived later than anticipated in August, it instilled greater confidence in the market. This shift saw a rise in growth lending as businesses focused on expansion, contrasting with 2023’s trend of securing working capital loans primarily to cover overhead costs rather than growth initiatives.
Across the spectrum of products and lenders, 2024 marked a period of renewed confidence. High street banks began to re-engage with the broader market, reversing a period of disengagement from business development. For instance, HSBC established a Business Development Management team and introduced broker commissions for the first time, signaling they were open for business. Similarly, Barclays revamped their market presence with refreshed offerings. Meanwhile, fintech leaders continued to provide vital support during the banks’ retreat, maintaining stability and options in the market.
However, the year wasn’t without setbacks. High-profile market exits included ABN Amro which largely ceased offering invoice discounting, and Hampshire Trust Bank, which withdrew its asset finance products, thereby reducing lender choice. Unlike the pre-COVID era, there was no significant influx of new fintech lenders, leaving the alternative finance landscape relatively stable. Despite this, invoice discounting and asset finance products thrived, especially among larger corporates leveraging these solutions for growth.
Recent years have been a challenge post-covid, as 2022 and 2023 were subdued due to lingering COVID loans and rising interest rates which dampened lending activity. However, in 2024 SMEs and corporates benefitting from the banks’ renewed willingness to lend
2025 market outlook
The market’s trajectory in 2025 will heavily depend on business reactions to evolving economic conditions. Historically, UK SMEs have demonstrated resilience and have creatively adapted to challenges in order to facilitate growth.
The Autumn Budget’s announcement, particularly changes to National Insurance Contributions (NICs) has significantly impacted smaller businesses in particular, with some unable to afford additional costs, leading to stagnant wages, or in worse cases, redundancies. A reversal of these policies by the government would provide much-needed relief to struggling businesses.
Interest rate cuts will also play a pivotal role in economic growth. For the economy to gain momentum, the Bank of England must adopt a proactive rate-cutting approach. While 2024 saw a modest 0.5% reduction, a more substantial cut of 0.75%-1% is necessary to ease funding pressures and stimulate growth.
Sector-wise, retail, leisure, hospitality and construction remain high-risk for most lenders unless supported by sector-specialist financing. These industries continue to face challenges due to their higher cash-burn rates compared to sectors that are considered as more stable such as manufacturing.
From a lending and funding perspective, the UK is likely to see a slow start to 2025, with momentum building throughout the year. By year-end, there is expectation of a buoyant lending market which would be particularly helpful for SMEs, which remain the backbone of the UK economy.
2024 brought notable changes in lending dynamics and optimism among businesses for the majority of the year. Whilst challenges persist, particularly with government policies and sector-specific risks, the outlook for 2025 suggests steady improvement, conditional to effective interest rate cuts and SME adaptability.
Corporate Finance
Read more about Corporate FinanceRead moreBy year-end, there is expectation of a buoyant lending market which would be particularly helpful for SMEs, which remain the backbone of the UK economy.
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