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How SMEs are investing for success

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UK SMEs are planning to increase investment on the back of improved confidence and financial performance, our new research has found.

Published today, Q3 2023: Investing for Success presents a detailed look into the improving position of SMEs.

Conducted for Paragon by Opinium, the research of 500 SMEs found that 74% sought additional financing in the last three months – a 25 percentage point increase from Q2.

The increase in SMEs seeking investment follows improved turnover, with 54% of businesses reporting an increase in the last three months. Concurrent with improved turnover, the data also finds that 37% reported an increase in cashflow.

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New investment in assets

The research identified that SMEs are focusing investment on plant and machinery, equipment and transport assets.

The proportion of firms planning to invest in plant and machinery increased between the second and third quarter from 25% to 39% - with increases from 30% to 35% and 17% to 28% in equipment and transport spending respectively.

Businesses are also set to make substantial investments in electric vehicles. Over a quarter of firms (26%) said they planned to invest in the next six months. Other areas of planned investment include recruitment (28%) and light commercial vehicles (20%).

Improving confidence for key sectors and the wider economy

Half of all SMEs (51%) surveyed were confident regarding the prospects of their own business over the next three months, with confidence in the sector in which they operate rising from 51% to 56%.

SME confidence in the wider UK economy has also improved. Only 38% of businesses had previously expressed confidence in the quarter ahead for the economy, but the new research records a rise to 44%.

Cost increases

Over the past 12 months, 93% of businesses experienced growth in their cost base, with an average increase of 27%. To tackle cost increases during this period, businesses reduced energy use (37%), secured cheaper materials (31%) and increased prices (30%).

In the past three months, the largest cost increases were in energy (27%), fuel (25%) and asset/equipment prices (24%). However, raw material costs (23%) remained unchanged compared to the previous quarter.

John Phillipou, Managing Director of Paragon’s SME Lending Division, said: “SMEs are investing and preparing for success. They are today not only increasing investment in crucial assets, but they are also taking significant steps in transitioning their operations to sustainable technology.

“With new data uncovering the drivers behind the renewed investment, Investing for Success demonstrates how businesses are making pragmatic decisions to target growth at a time when costs have continued to put pressure on bottom lines. With the proportion of businesses investing in electric vehicles and energy equipment rising, SMEs are planning for the future.”

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Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551