SMEs are ready to ramp-up investment, with fresh spending on assets and expanded workforces, Paragon Bank’s new SME barometer has found.

The report, Q2 2023: An SME Led Recovery, is based on a survey of over 500 SMEs from across the UK. It identified growing expectations for cashflow to improve – leading to increased investment by businesses in their operations.

The first in a series of quarterly research reports that will track the sector, An SME Led Recovery details the performance, plans and ambitions of SMEs, highlighting the central role they play in the UK economy.

Cashflow and turnover set to improve

Conducted for Paragon by Opinium, the research found that 45% of SMEs predict that their cashflow will improve substantially over the next three months, rising to 50% over the next six months and 55% over the next year. Only 26% of SMEs had seen their cashflow improve over the previous three months.

Similarly, turnover is also set to improve – 44% of businesses reported rising turnover levels during the first quarter of the year, with 47% expecting turnover to improve further during the second quarter, compared to 27% that forecast a fall.

Investment on the increase

Over a third of SMEs (34%) will use increased cashflow and financing to invest in their businesses, with 52% planning to maintain current investment levels and only 10% expected to reduce spending.

Equipment and machinery lead the planned investment of SMEs, with 32% of all SMEs planning to invest in each respectively.

The renewed investment will also see the number of SMEs investing in electric vehicles rise from 14% in the last six months to 22% across the next six, the largest growth recorded in any investment area:

• Equipment: 31% > 32%
• Machinery: 30% > 32%
• Electric Vehicles: 14% > 22%
• HGVs: 14% > 18%
• LCVs 10% > 14%

SMEs are also planning to boost their operations by increasing their work force. A third of businesses plan to recruit over the next six months, with only 18% planning on reductions.

Confidence strong in business prospects

SMEs expressed confidence in their prospects for their own businesses and the sector in which they operate but were less confident about the macro environment. Over half of SMEs said they were confident in their own business (53%) and their sector (51%) in the next three months, compared to 14% and 16% respectively that were not confident.

Confidence was less strong in the UK economy and global economy, with 31% and 30% of SMEs expressing confidence in these two areas respectively. 

SMEs seek finance

The research also found that 49% of SMEs sought additional financing over the last three months, with 57% of those businesses seeking over £100,000.

Around a tenth of this group (5% in total) received no additional financing, nearly half of this group (22% in total) received some of the finance they were seeking, and the remaining (21%) received all the financing they were looking for. On average, business that sought financing looked for just under £473,000.

John Phillipou, Managing Director of Paragon’s SME Lending Division, says: “No one should ever doubt the resilience and forward-thinking of SMEs. After facing challenge after challenge, they are now ready to drive economic recovery throughout the UK.

“Identifying plans for investment in green technology and increased workforces, An SME Led Recovery demonstrates that businesses are planning for the future and making sure they are ready to take full advantage of the opportunities that will arise in the months and years ahead.”

He continued: “For SMEs to be able to invest it is essential that they are supported and have access to the funding necessary to deliver on their plans. As SME lending specialists, Paragon knows and understands the challenges they face and shares their passion for generating economic growth. An SME Led Recovery demonstrates the huge potential for SMEs in the year ahead – and I can’t wait to work with businesses to ensure that this potential is delivered.”