Issuu

PATHWAYS TO P ROS P E R I TY

N ACFB M E MB ERSH I P R E PORT 2 0 2 4

2 | NACFB

Contents

N ACFB MEMBERS HIP RE PO RT 2 0 2 4 The National Association of Commercial Finance Brokers

INT R ODUCT I O N

4-5

FOR E WOR DS & ME T H ODOLO G Y

6-9

B USINE SS B R OADW AY

10-11

B R OK E R ST RE E T

12-13

LE NDE R PAR KW AY

14-17

C LIE NT JUNCT I O N

18-23

T RANSACT ION C E NT RA L

24-25

LE VE L C R OSS I N G

26-31

DYNAMICS VAL L E Y

32-35

C H ALLE NG E H I L L

36-39

F UT UR E LA N E

e: press@nacfb.org.uk | t: 020 7101 0359 | a: 33 Eastcheap, London, EC3M 1DT

NACFB sponsors 2024

DISCLAIMER: This report is designed solely for informational purposes and does not offer financial or any other form of advice. While diligent efforts have been made to verify that the information presented was accurate as of the date of publication, no guarantee is provided regarding the accuracy, completeness, or reliability of the report’s content or the perspectives expressed within. The NACFB, along with its staff and representatives, accepts no responsibility or liability for any decisions or actions taken by individuals based on the information provided in this report.

NACFB | 3

Pathways to prosperity PUTTING S MALL BUS I N ESS ES B AC K ON TRACK Paul Goodman Chair NACFB

The narrative of a nation’s growth, aspirations, and challenges often finds metaphors in its most defining infrastructures. Last year, the NACFB told the story of its journey through 2022 by comparing the trade body’s vibrant network to the pulsing energy of the national grid. This year, our story draws parallels with the UK’s rail network, a testament to British innovation and its enduring importance. 2023 unfolded as a mosaic of economic challenges: fluctuating borrowing patterns, spiralling inflation, recurrent interest rate hikes, a looming recession, landmark regulatory developments, and an ever-present shadow of political uncertainty. Through it all, the UK’s small business community, with the unwavering support of both brokers and lenders, steered forward with determination.

This report is your compass to understanding the year’s more intricate terrains. It melds hard data with the sentiment, insights, and rich anecdotes that only the NACFB’s unique position in the financing ecosystem can provide. Just as Britain’s railways have been the arteries connecting our nation’s heartbeats, commercial finance brokers embody the spirit of connecting businesses to opportunities, illuminating pathways, and ensuring they stay on the right track. Much like our railways, the UK’s banking sector stands as a pioneering legacy. And in a year when rail networks consistently made headlines, be it due to pay disputes or the recalibration of HS2 plans, the NACFB community also faced its own set of challenges. Just as railway unions advocate for retaining the human touch in rail services, the NACFB continues to champion the indispensable role of human guidance in the SME funding journey. In the pages that follow, you’ll embark on a journey through the intermediary-led lending sector in 2023. May it enrich your understanding, reinforce your conviction, and remind you of the pivotal role the NACFB community plays in powering UK plc. Let’s embark on this journey together, and may our collective efforts keep businesses on the fast track to growth and prosperity.

NAC F B MEM BERSHIP IN 2023 AT A G LANC E : MEMBER BROKER FIRMS

INDIVIDUAL MEMBER BROKERS

PATRON LENDERS

SERVICE PROVIDER PARTNERS

1, 172

2 ,2 4 0

156

( 12%)

( 11%)

(=)

( 85%)

4 | NACFB

2 0 2 3 : A TO UGH Y EAR FO R SMA LL BUSINESSES

LE NDING PE RSISTS AMIDST S ME C H ALLE NG E S

Reinald de Monchy Managing Director Guarantee and Wholesale British Business Bank

023 was a challenging year for smaller businesses across the UK’s nations and regions. Interest rate rises and high inflation, alongside elevated input costs have squeezed the cash flow and profit margins of many smaller firms. Gross bank lending fell in the first half of the year, although this stabilised in the third quarter, and banks have generally been more cautious about new lending, including applying more conservative tests of affordability and, increasingly, preferring to lend to businesses in stronger financial positions. Equity finance has also continued to decline, with levels of finance raised by smaller businesses lower than before the pandemic. Against this backdrop, the importance of the NACFB’s professional broker network in facilitating a wider choice of finance for borrowers cannot be overstated. It represents an essential part of the market, connecting smaller businesses with the tailored finance options they need, especially those that might not be available from other sources. Asset finance, unlike other forms of debt finance, has remained strong throughout 2023, with more than nine out of 10 applications being successful, and the market showing year-on-year increases each month in the first three quarters. Many of the NACFB’s Patron lenders, who are also delivery partners for the British Business Bank, play a big role in delivering the Bank’s programmes, often serving businesses or sectors where access to finance might otherwise be more challenging. The broker network has also been invaluable in explaining and promoting the finance facilities available under the Bank’s Recovery Loan Scheme and making referrals to its lenders. This has been a hugely important programme for smaller businesses, providing over £4.3 billion in finance in its first two stages alone. In December, we introduced a new Asset Based Lending variant of the scheme, joining the existing term loan, revolving credit facility, invoice finance and asset finance variants, designed to support access to finance for UK businesses as they look to invest and grow. The Bank remains committed to delivering such direct guarantee products to the market, and we know that, as a valued partner, the NACFB and its broker network will continue to be an essential part of delivering any successor scheme that might be put in place during 2024.

David Raw Managing Director Commercial Finance UK Finance

lthough 2023 started on a more level footing for the UK’s SMEs and their lenders, after the significant political and economic turmoil of 2022, the challenges of inflation, higher input costs and dampened consumer spending still loomed large. Against these challenges, one might be forgiven for thinking this would have had negative implications for the supply of commercial lending. However, whilst demand for finance from SMEs as a whole remained relatively subdued, lenders continued to supply near-record levels of finance to SMEs. Indeed, gross lending to SMEs (defined with respect to loans excluding overdrafts) flowed at around £5 billion gross per month in 2023 (Source: Bank of England). 2023 also saw the continued repayment of the £72.5 billion of lending provided under the Covid lending schemes to SMEs. In many cases, the SMEs lent to during Covid have been able to build higher than average cash deposit levels which, although now reducing in size, have further reduced the demand for new finance. While current economic factors have dampened SME demand for finance, as well as inevitably impacting the viability of some SMEs, the longer-term norm of many SMEs being permanent non-borrowers remains an important factor. In keeping with this longer-term pattern, it is notable that smaller/newer SMEs in particular tend to be focussed on paying back existing debt rather than taking on new finance. As we begin 2024, it is clear that the economic picture will continue to be a tough one, presenting affordability challenges for some SMEs looking to take on more finance. Profit margins will continue to be squeezed, although with inflation now hopefully having peaked, there is room for optimism that the scale of these challenges may be shrinking. For those business owners looking to take on finance in 2024, brokers will be well placed to support them in finding the right deal from the right provider, in an increasingly competitive market. Irrespective of how 2024 plays out, banks and lenders will continue to support SMEs to invest for growth and to manage their financial situations in the face of economic challenges. They will themselves be supported by brokers who will play an increasingly important role in bridging the gap between those seeking finance and those that provide it in the years ahead.

NACFB | 5

BR O KERS REM AIN ESSENTIAL TO SME SUCCESS Dave Furnival Head of Broker and Intermediary Services NatWest

f you’re looking ahead to 2024 and wondering what to expect, you’re not alone. A cut in interest rates courtesy of the Bank of England (BoE)? Inflation to fall near the BoE’s target 2%? Economic slowdown? All of the above, and more, I suspect, meaning a lot on the plates of both lenders and brokers. While there’s plenty of data to crunch, there are competing narratives trying to make sense of it. Let’s start with the interest rates. Currently the BoE’s base rate is 5.25% - a figure last seen in the early months of 2008. As we know, the BoE’s mandate is squarely focused on bringing down inflation and setting the base interest rate is its headline-grabbing tool to do this. While inflation is falling fast – some predict it will hit that magic 2% this Spring – there are mixed expectations that the BoE will reduce its base rate so swiftly. Markets appear to have priced in a first rate cut in May this year, but former EPC member Dame DeAnne Julius thinks the BoE may not have scope to do this until 2025. As of early January, BoE Governor Andrew Bailey has been taciturn on the prospect of cuts. Meanwhile, real GDP is estimated to have fallen by 0.3% in October 2023. Yet confidence in the economy is reportedly growing among CFOs. According to Deloitte’s fourth-quarter CFO survey their concern has shifted from inflation and high interest rates to geopolitical risks and the UK’s low productivity. Cue more data on these topics, and ways to read it, in the weeks and months to come. As brokers and lenders appreciate, businesses are often keen to invest counter-cyclically, as well as cyclically. The data from this year’s NACFB report suggests that while there is caution about output, businesses are planning longer term. Even those that don’t invest when the economic clouds gather will be seeking to roll over their current loans with better terms. Regardless of our place in the economic cycle, it’s worth remembering that brokers fulfil a key part in delivering the capital that businesses need. And that’s not a question of interpretation.

ME T H ODOLOG Y & AC K NOWLE DG E ME NTS

The NACFB's annual lender and broker survey represents a comprehensive effort to map the contours of intermediary-led lending over the past year. The survey was disseminated in early November 2023 to the trade body’s growing network, including to 1,150+ accredited NACFB Member commercial finance brokerages and approximately 160 commercial finance lenders, known as NACFB Patrons. Achieving a response rate of 29% from NACFB brokers and 50% from lenders, the survey encompasses a robust and diverse cross-section across various sectors, regions, and types of finance. The data comprises responses to over 100 carefully crafted questions, designed to distil a clear and detailed picture of the year's intermediary-led lending activities. 2023 marked the inaugural inclusion of formal and informal qualitative insights from a representative selection of both brokers and lenders. Through roundtable sessions, these experts helped validate preliminary survey findings, challenge prevailing narratives, and contribute alternative viewpoints as well as offered honest critical reflections. Rigorous attention has been paid to ensure the validity of the conclusions drawn. Any elements with a degree of uncertainty are clearly indicated within the survey, and the NACFB has strived for methodological transparency throughout. All collected data, whether quantitative or qualitative, were anonymised before any analysis and it is worth noting that the sum of responses in some questions may not total 100% due to rounding. The survey employs both mean and median averages for data presentation; larger funding totals are depicted using median values, while mean averages are believed to better represent smaller amounts. Participants were requested to project and approximate the total transactional value for the year, factoring in expected pipeline activity for the final weeks. The NACFB extends heartfelt thanks to all survey participants, both those who responded online and those who provided insights in person. Special appreciation goes to Dr Andrew Knapper and Dr Louise Knapper for their meticulous data interrogation and patience. Finally, a loving acknowledgement goes to Harvey Marr-Jones, whose night feeds provided reluctant but no less valuable thinking time for the report’s author.

6 | NACFB

B US I NE SS BR OA DW AY

We start our journey by delving into the dynamic contours of the UK’s small business sector as of 2023. By collating information from an array of authoritative sources, we aim to provide a backdrop

against which the NACFB’s survey findings can be better understood. As you will see, the business climate in 2023 reveals a mixed tapestry of growth, innovation, and challenges.

1. 1 BUSI NESS POPUL ATIONS As of early 2023, the UK’s private sector comprised approximately 5.6 million businesses. Among these, 26% employed staff, while the remaining 74% were non-employing businesses, operated solely by their owner(s).

This represents an increase of 0.8%, or about 46,000 businesses, compared to the private sector business population in 2022.

5,5 1 0 ,0 0 0

36, 900

8, 000

Small businesses (0 to 49 employees)

Medium-sized businesses (50 to 249 employees)

Large businesses (250 or more employees)

(Source: Department for Business & Trade, 2023)

NACFB | 7

1. 2 BUSI NESS GROUPS As of March 2023, the number of businesses in the UK registered for Value Added Tax (VAT) and/or Pay As You Earn (PAYE) was 2.727 million, marking a 1.5% decrease from March 2022. This decline represents the first decrease in VAT and/or PAYE-registered businesses in over a decade. The professional, scientific, and technical sector remains the largest industry group, constituting 15.2% of all registered businesses in the UK. This percentage has decreased by 0.4 points from the previous year. Below is the total number

of VAT and/or PAYE businesses by broad industry group in 2023 (numbered count rounded to nearest thousand). In 2023, the transport and storage industry experienced a notable decline of 6.9%, with courier activities and road freight transport facing the most significant decreases. The information and communication sector also continued its downward trend for the third consecutive year, decreasing by 4.5%. In contrast, the property and health sectors exhibited the highest growth, each increasing by 2.8%.

2022

% OF 2022’S BUSINESS TOTAL

2023

% OF 2023’S BUSINESS TOTAL

Professional, scientific, and technical

431,000

15.6%

415,000

15.2%

Wholesale and retail; repair of motor vehicles

414,000

15%

402,000

14.7%

Construction

375,000

13.5%

378,000

13.8%

Business administration and support services

229,000

8.3%

226,000

8.3%

Retail

224,000

8.1%

217,000

Information and communication

196,000

7.1%

187,000

6.9%

Arts, entertainment, recreation, and other services

181,000

6.5%

184,000

6.8%

Accommodation and food services

175,000

6.3%

175,000

6.4%

Production

155,000

5.6%

152,000

5.6%

Agriculture, forestry, and fishing

143,000

5.1%

141,000

5.2%

Manufacturing

138,000

136,000

Transport and storage (inc. postal)

138,000

129,000

4.7%

Property

111,000

114,000

4.2%

Health

106,000

3.8%

109,000

Wholesale

108,000

3.9%

104,000

3.8%

Motor trades

81,000

2.9%

81,000

Finance and insurance

60,000

2.2%

59,000

2.2%

Education

47,000

1.7%

47,000

1.7%

Mining, quarrying and utilities

16,000

0.6%

16,000

0.6%

Public administration and defence

8,000

0.3%

8,000

0.3%

BROAD INDUSTRY GROUP TYPE

(Source: Inter-Departmental Business Register (IDBR) from the Office for National Statistics)

8 | NACFB

1. 3 UK SME L ENDING In autumn 2023, UK Finance revealed a 20% year-on-year drop in lending to SMEs. Lending to SMEs fell for the fifth consecutive quarter, while gross lending was down by just over a fifth when compared to 2022. Demand uncertainty,

higher interest rates, and the impact of lending taken out during the pandemic have all contributed to the weakness in gross lending last year.

Number of approved loans and overdrafts by sector TYPE OF LENDING

2021 Q3

2021 Q4

2022 Q1

2022 Q2

2022 Q3

2022 Q4

2023 Q1

2023 Q2

2023 Q3

Agriculture

5,293

3,985

4,144

3,491

2,972

2,206

2,793

3,471

3,163

Manufacturing

1,502

1,603

1,792

1,547

1,512

1,238

1,523

1,303

1,221

Construction

2,051

2,252

2,858

2,060

2,354

1,790

1,991

1,791

1,605

Wholesale & retail

3,209

3,794

4,293

3,689

4,051

3,458

3,931

3,626

3,256

Accommodation & food

1,104

1,332

1,466

1,428

1,403

1,352

1,588

1,331

1,206

Transport

1,619

1,688

1,753

1,550

1,622

1,220

1,593

1,550

1,389

Real estate, professional services & support activities

5,007

5,663

5,876

5,053

5,028

3,779

4,712

4,423

3,807

Real estate

1,456

1,732

1,626

1,225

1,216

828

972

925

713

Professional services

3,551

3,931

4,250

3,828

3,812

2,951

3,740

3,498

3,094

Education

430

481

476

376

396

377

444

411

Human health & social

1,252

1,321

1,531

1,354

1,497

1,248

1,480

1,429

1,389

Recreational

1,160

1,442

1,523

1,458

1,572

1,289

1,427

1,300

1,244

(Source: UK Finance – Q3 Business Finance Review)

Number of approved loans and overdrafts 16,000

(Source: UK Finance – Q3 Business Finance Review)

LOANS

14,000

OVERDRAFTS

12,000

Volume

UK Finance data also suggested that in 2023 SMEs leant more heavily on existing resources, particularly cash deposits, rather than seeking new finance. The higher interest rates environment was a key factor in suppressing firms’ appetite to borrow. Q3 saw a slight decrease in the number of approved loans and overdrafts from Q2, with the trend of more overdraft approvals compared with loans continuing.

10,000 8,000 6,000 4,000 2,000 0 2021 2021 Q3 Q4

2022 Q1

2022 Q2

2022 Q3

2022 Q4

2023 Q1

2023 Q2

2023 Q3

NACFB | 9

1. 4 SME USE OF EXTERNAL FINANC E finance, which dropped to 37% in 2020. Though there was an increase to 43% in 2021, this upward trend did not persist into 2022. However, recent increases in the uptake of traditional financing, combined with more detailed data on SMEs still managing pandemic fund repayments, have contributed to a rise in external finance usage, now at 50%.

As of the third quarter of 2023, half of the UK’s SMEs were utilising some form of external finance. This increase since the beginning of the year can be attributed to both a rise in the use of ‘traditional’ finance and a better grasp of the ongoing repayment of pandemic-related funding. In comparison, back in 2019, nearly 45% of SMEs used external

0 employees - 38%

50-249 employees - 45%

49%

50% Q3 23

43% Q2 23

3m Aug

41% Q1 23

47%

34% Q4 22

3m Jul

33% Q3 22

38%

40%

43%

37%

45%

36%

38%

37%

10-49 employees - 67%

37%

50-249 employees - 73%

37%

1-9 employees - 61%

41%

0 employees - 47%

10-49 employees - 70%

44%

1-9 employees - 58%

(Source: BVA BDRC – Q3 SME Finance Monitor)

Q2 22

Q1 22

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

% of SMEs using external finance

2022

2023

10 | NACFB

Other professional service firms (e.g. accountancies) (=)

BR OKER STR EET

Non-regulated independent firm ( 3%)

The NACFB’s core strength lies in its diverse network of finance professionals from approximately 1,200 firms operating across the UK, united in their mission to provide the best funding solutions for their business borrower clients. At the end of 2023, the Association marked an historic high in its 32-year journey, with Members ranging from property finance specialists in Bristol to asset and leasing experts in Derry, all committed to intermediary excellence.

18%

73%

Directly authorised independent firm ( 9%)

Appointed representative of a network ( 7%)

Agent of a network ( 0.5%)

Digitally led platform ( 0.5%)

2. 1 SI Z E OF BROKERAGES

2 .2 TYPE S OF B R OK E RAG E

At present, approximately one-third of the NACFB’s Members operate as solo firms. 2023’s data closely resembles 2022’s findings, though rising operational costs and growing regulatory challenges could well lead to a continued decline in the number of these one-person firms.

For only the second time, the NACFB surveyed its Members to determine how they themselves classify their firms. Whilst section 2.1 indicates a slight decrease in the number of solo firms, there hasn’t been a noticeable migration towards Appointed Representative (AR) networks. Instead, there’s been a significant (9%) increase in directly authorised independent firms. Notably, the number of non-regulated firms rose by a third, possibly as a reaction to the FCA’s ‘use it or lose it’ policy on authorisation, as anticipated in 2022.

1 broker ( 1%)

4-7 13 - 20 35 - 59 brokers brokers brokers 2-3 60+ ( 1%) 8 - 12 ( 1%) 21 - 34 (=) brokers brokers brokers brokers ( 4%) ( 1%) ( 2%) ( 1%)

2 .3 B R OK E R AR E AS OF B US INE SS ACT IVITY The NACFB asked Members to project their total transaction value for 2023 and visualise it as a pie chart. They were then asked to specify the approximate percentage of each finance type within this total. This exercise aimed to identify the primary areas of business activity offered by confidently assuming the largest type of finance they provided by value was also their primary area of activity.

34% 25% 19% 11%

4% 1%

Notably, 73% of the total transaction value generated by NACFB Members originated from property-related sectors, with the remaining transactions being driven by various business finance-led activities.

NACFB | 11

% of total transaction value

Given the increased costs due to the high-rate environment, it’s unsurprising that buy-to-let (BTL) mortgages were both refinanced and restructured in 2023. According to Bank of England data, in 2023, over 99% of new BTL loans had LTV ratios below 80% – with 82% of total BTL lending interest-only.

Buy-to-let mortgages

28% 25%

Commercial mortgages

16%

Leasing & asset finance

Anecdotally, there was an uptick in short-term and bridging finance, indicating a tendency among some borrowers to adopt a ‘wait and see’ stance in response to the fluctuating rate environment. Due to a methodological rethinking, the NACFB does not have viable comparable data from 2022. It’s important to note that this analysis, which focuses on the total transactional value by type of finance rather than volume, may disproportionately represent areas with lower ticket sizes but higher transaction volumes, as is likely with the leasing and asset sector.

Short-term & bridging finance

11%

Property development finance

Unsecured finance

7% 3%

Invoice finance M&A finance

2. 4 BUSI NESS ACTIVITY F LU CT UATIONS

Revenue-based finance

0.5%

Trade finance

0.5%

29%

Amidst the economic turbulence of 2023, NACFB Members demonstrated significant resilience and adaptability. A substantial 95% of brokerages either sustained their operational output or diversified their services. Only 5% scaled back their offerings in response to the challenging conditions.

DIVERSIFIED

66%

REFINED

STAYED BROADLY THE SAME

(reduced offering, scaled back services)

(offered more products and services)

(no change)

2. 5 BUSI NESS SECTORS SERVICE D they facilitated transactions in the construction sector, followed by 65% in real estate, and 57% in manufacturing. Fewer brokers operated in sectors like public administration and defence (3%), mining and quarrying (8%), and utilities (8%).

Commercial brokers often define their expertise not just by the types of finance they offer, but also by specialising in specific business sectors, leveraging their industry knowledge and experience. In 2023, the NACFB surveyed its Members about the sectors they served. A significant 71% of brokers shared that

% of Members who operated in sector in 2023

8% s (e itie Util r) e wat

& qu

ing

arry

on & rati nist dmi lic a Pub e c n as, defe y, g ricit lect

ing

Min

ties

on cati Edu & ent ainm tert , en Arts ation e ial recr soc h& ealt an h ities Hum k activ wor & tion rma ation Info unic m ce com ran nsu l&i ncia Fina ities & v ific acti ient l, sc ies it iona ctiv fess Pro nical a y& tech estr , for ture icul Agr ng i n fish atio istr min s ad rvices e ines Bus pport s & su age stor rt & spo Tran od & fo tion oda mm Acco ices ade ) serv il tr r reta epai le & cle r lesa vehi Who uding l (inc ng

turi ufac

Man

tivi e ac stat

le Rea

n ctio stru

Con

12%

13%

15%

18%

21%

23%

25%

26%

44%

46%

54%

57%

65%

71%

12 | NACFB

In 2023, the NACFB’s expanding network of brokers was further complemented by the partnership with 156 active commercial lenders, serving as

Patrons. This diverse group ranged from the high-street giants to challenger banks, specialist lenders, and more boutique lending institutions. With a keen focus on collaboration, these lenders actively engaged with the trade body’s intermediary panel, partnering with brokers to provide comprehensive services to their SME clients.

3. 1 TYP ES OF L ENDER

3 .2 F UNDING LINE B LE NDS

The NACFB asked lenders to classify their operations within specific lending categories. Despite debates over definitions, the results from the NACFB’s panel of lenders offer a representative snapshot of the wider commercial sector. For reference, the NACFB defines ‘specialist lenders’ as those providing non-conventional loans, and ‘challenger banks’ as smaller, newer banking institutions.

Commercial finance lenders utilise a variety of funding sources, ranging from traditional deposit and savings-backed models to more contemporary methods such as peer-to-peer (P2P) structures and, increasingly, government-backed schemes.

LE ND ER PARKWAY

Community Development Financial Institutions (CDFIs) ( 6%)

High street banks ( 1%)

13%

Challenger banks ( 5%)

According to 2023’s data, 45% of NACFB Patrons primarily rely on institutional investors for funding. It’s also quite common for high-street lenders and challenger banks to engage in block funding with other lenders as a strategy to diversify their portfolio and risk exposure. The NACFB, advocating for more support in the Community Development Financial Institutions (CDFI) sector, included an appeal for increased block funding from senior lenders into the CDFI space in a Spring Budget wish list for April 2023. This move aligns with similar initiatives promoted by the Responsible Finance trade body.

Institutional investors

Deposit backed

Family offices/high net worth funders Specialist lenders ( 3%)

68%

P2P lenders ( 5%)

The data highlights a growth in the number of specialist lenders, potentially as a response to reduced market appetite. The NACFB observed a significant trend in 2023, with an increase in lenders – for the time being at least – sharpening their focus on specific regions, types of finance, and business groups. Additionally, there is a growing awareness and prevalence of CDFIs among brokers, as some lenders retreat from offering non-standard, smaller ticket-sized loans. 44% of the NACFB’s lender panel are regulated lenders, with 56% non-regulated, this data shows no change from 2022’s insights.

Government-backed schemes

P2P/retail investors

Other

45% 14% 23% 4% 10% 16% 8% 5% 6% 4% 6% 5% PRIMARY SOURCE IN 2023 SECONDARY SOURCE IN 2023

NACFB | 13

3. 3 SI Z E OF L ENDING TEAM NACFB lender Patrons typically have larger teams compared to their Member broker counterparts. These teams encompass both front and back-office roles, including field-based relationship and business development staff, underwriters, and in-house marketing personnel. In 2023, 56% of NACFB Patrons reported an increase in the size of their broker-facing teams, while 36% indicated their team size remained largely unchanged. Last year, only 8% of Patron lenders reduced their headcount. Brokers’ anecdotal feedback in 2023 noted a continued dissatisfaction with some lender service levels. This percevied drop in service levels, despite the increase in headcount, suggests that lenders might be reallocating resources away from frontline and intermediary-facing activities.

3. 4 LEND E R AREAS O F BUSI NESS ACTIVITY

Lenders too demonstrated significant resilience and adaptability in 2023. A substantial 96% of lenders either sustained their operational output or diversified their services. Mirroring their broker counterparts, only 4% scaled back their offerings in response to the challenging conditions.

(offered more products and services)

6 0%

REFINED

STAYED BROADLY THE SAME

(reduced offering, scaled back services)

12%

1-5 people

10% 6%

6 - 19 people

20 - 49 people

50 - 99 people

100 - 199 people

200 - 499 people

500 + people

(no change)

30%

Short-term & bridging finance Unsecured finance

22%

Commercial mortgages

19%

Property development finance

12%

Buy-to-let mortgages Leasing & asset finance

3. 5 BUSI NESS ACT I VI TY FLUCTUATIONS

DIVERSIFIED

26%

% of total transaction value

As with NACFB Members, the survey also asked Patron lenders to project their total transaction value for 2023 and visualise it as a pie chart. They too were then asked to specify the approximate percentage of each finance type within this total. This exercise aimed to identify the primary areas of business activity offered by confidently assuming the largest type of finance they provided by value was also their primary area of activity.

36%

34%

6% 5%

Revenue-based finance

Invoice finance

3 .6 DIR E CT TO INT E R ME DIARY RAT IO The composition of NACFB Patrons includes both lenders who provide funds directly to SMEs as well as through intermediaries. Some lenders rely exclusively on brokers and introducers for their business, offering no direct lending options. In 2023, 69% of the total lending by NACFB Patrons to UK SMEs was conducted via the commercial intermediary channel. This proportion is consistent with the previous year’s figure of 70%, underscoring the enduring significance of the broker-led approach to the market. Whilst future shifts in this ratio remain uncertain, the fact that 56% of lenders expanded their broker-facing teams in 2023 (see 3.3) suggests that this level of intermediary involvement is likely to persist.

14 | NACFB

CLI ENT JUNCTION

The intermediary-led funding process starts with the basics – the businesses and their

0-4

Active clients 8%

5-9

20%

20 - 49

18%

50 - 99 10%

100 - 149 150 - 249

An ‘active client’ is defined as one for whom the broker has recently sourced funding and who is likely to seek their services again. Remarkably, about 70% of NACFB Members have an active client base of no more than 150, precisely mirroring the figure from 2022. This consistency indicates a strong emphasis on client care and fostering long-term relationships, rather than simply increasing the number of new clients.

250 - 499

500 - 999

1,000 - 1,999

2,000 - 4,999

5,000+

4 .1 T H E ACT IVE C LIE NT B ASE NACFB Members, like all commercial finance brokers, manage a diverse range of SME clients across various industries and regions in the UK. This year’s survey aimed to gain a deeper understanding of these clients, particularly in terms of the typical size of a broker’s client base.

13%

10 - 19

owners – before any transactions occur or indeed any terms are negotiated with lenders. This section of the report delves into the composition of the broker’s SME client base, exploring the who, what, where, when, and why of their borrowing needs.

Additionally, there has been noticeable growth in client numbers, suggesting an expansion in the base number of clients that a brokerage can effectively service.

4. 2 W ELCOM ING N EW C LI ENTS Within the active client base (4.1), brokers also welcomed new clients in 2023. The results reveal that 66% of NACFB Members welcomed no more than 50 new clients to their active base in 2023, a notable rise of six percentage points on last year’s new client total.

26% 15%

17%

16%

0-4

10 - 19 5-9

50 - 99 20 - 49

150 - 249 100 - 149

New clients

2,000+

500 - 999 250 - 499

1,000 1,999

NACFB | 15

4 .3 SIZ E OF C LIE NTS

23%

This year, the NACFB aimed to gain a more detailed understanding of the businesses served by both its Members and Patrons. To achieve this, the Association requested Members to report the employee headcount of their clients in 2023. These findings will enhance the community’s knowledge of which segment of the SME market is predominantly supported by NACFB Members.

21%

18% 12%

11%

2-4 employees ( 1%) 1 person ( 5%)

10 - 19 employees ( 9%)

5-9 employees ( 4%)

50 - 99 employees (=)

20 - 49 employees ( 4%)

4. 4 SO URCES OF C LI ENT O RIGINATION NACFB Members generate business leads from a variety of sources, largely influenced by the transaction’s sector and the type of finance being utilised. Consistent with previous years, a broker’s primary source of clients in 2023, accounting for 45% of total transactions, was from returning customers. Notably, referrals from clients emerged as a significant source, contributing to 17% of lead generation - making it the second most populous. This increase may suggest growing client satisfaction or an emerging practice among small businesses owners of sharing borrowing advice. Additionally, there has been an uptick in professional service providers referring their clients to the broker network for assistance in securing appropriate funding.

1.5%

0.5%

150+ employees ( 0.5%)

100 - 149 employees ( 1.5%)

Unknown (-)

Notably, half of the respondents indicated that they typically serve clients with a workforce of no more than nine people, marking a marginal increase from 2022. When the same question was posed to NACFB lender Patrons, the results closely mirrored Member responses, confirming a consistent representation. Anecdotally, NACFB Members are reporting an increase in the number of medium-sized enterprises seeking intermediated finance solutions. Although this is not borne out in the data, the NACFB expects this increase to continue.

45% 52% 50%

Returning customers

17% 13%

Referrals from clients

Professional service introducers (e.g. lawyers, accountants, and estate agents)

16% 13%

Referrals from other brokers

9% 9% 10%

Marketing initiatives

6% 8% 10%

Referrals from lenders

4% 2% 4%

Sector suppliers (e.g. construction firms and product suppliers)

2% 3% 3%

21%

TYPE OF LEAD SOURCE 2023 TYPE OF LEAD SOURCE 2022 TYPE OF LEAD SOURCE 2021

16 | NACFB

4. 5 P RI MARY REASON FO R BO R ROWING

4 .6 T H E INT E R ME DIARY DIF F E R E NC E

Building on a question introduced last year, the NACFB aims to distinguish between SME finance used for proactive growth and distressed borrowing. Brokers were asked to categorise their clients’ primary reason for seeking capital to help better identify key borrowing motivators.

Highlighting the value NACFB Members offer, in the past year, 32% of new clients successfully funded by Members had previously been denied funding elsewhere, marking a 3% increase from 2022. This includes businesses that were rejected for debt financing by banks or other finance types, such as equity funding. These cases exemplify the crucial role NACFB Members play in providing access to growth capital.

The survey showed that 87% of SME borrowing in 2023 was driven by growth ambitions, a slight decrease of five percentage points from 2022, whilst only 1% of loans were for reasons suggesting distress. Patron lenders also provided their insights on the growth-to-distressed borrowing ratio, with their responses largely corroborating the brokers’ data.

To prevent insolvency - 0%

Additionally, the NACFB found that 29% of transactions brokered by Members led to clients choosing a different financial solution than they originally sought, a slight increase from the previous year. This shift underscores the tangible benefits of working with a commercial finance broker, who can guide clients towards more suitable funding options.

To help maintain daily operations

To directly save jobs - 1%

8 7 % G R OWT H For overseas trading import/export - 0%

12%

To help clients to innovate their products/services - 1%

DIST R E SS E D

12% 4%

1 2 % CONT INU I TY

To improve operational efficiency

15%

To expand the business

87%

67% To help acquire property/assets

It is important to note that since SMEs themselves were not directly surveyed, these results should be considered indicative rather than definitive. Despite this, the NACFB believes these findings are still valuable and informative.

NACFB | 17

4. 7 F URTHER BORROWING FACTORS

LOAN DE FAULTS

In 2023, only 14% of NACFB Members’ successfully completed commercial finance transactions were regulated, showing a decline from 17% in 2022 and 16% in 2021. This decrease is notable given that, as Section 2.2 indicates, only 9% of broker firms classify themselves as non-regulated independent entities.

Economic downturns typically lead to an increase in payment defaults. In 2023, the NACFB for the first time asked its Member brokers if there was a higher rate of defaults compared to the previous year. Patron lenders were not surveyed on this due to the perceived sensitive nature of the information. The findings showed that whilst a quarter of brokers observed an increase in client defaults, the majority reported no significant change. The 31% of respondents who shared that they didn’t know may also include those reluctant to disclose such information.

In addition, NACFB Patrons shared that just 10% of their overall commercial transactions last year fell within the regulatory perimeter.

SUSTA I NABL E BORROWING Sustainable finance continued to be a hot topic in 2023. Whilst more lenders are offering green funding solutions, the question remains: is there a corresponding client demand? When asked, approximately a fifth of both NACFB Member brokers and Patron lenders reported a rise in the number of clients seeking green funding solutions, the largest proportion of both cohorts, however, saw no change.

Don’t know

31%

Increased significantly

24%

Increased slightly

19%

More green funding enquiries

18%

32%

Less green funding enquiries

21%

50%

Broadly the same amount

61%

Decreased significantly

Decreased slightly

37%

Remained the same

BROKER RESPONSE IN 2023 LENDER RESPONSE IN 2023

F RAUDULE NT ACT IVITY More fraudulent loan enquiries

Less fraudulent loan enquiries

Broadly the same amount

6% 12%

43% 18%

51% 70% BROKER RESPONSE IN 2023 LENDER RESPONSE IN 2023

The last UK recession was Q1 2020, at the height of the COVID-19 pandemic, and witnessed a 24% rise in fraud cases as per England and Wales crime figures. In the current economic downturn, a similar increase in fraud could be anticipated. Yet, when the NACFB surveyed its membership about fraudulent loan enquiries in 2023, a significant number of both lenders and brokers reported a decrease in such activity, with the majority observing no significant change.

18 | NACFB

TRANSACT ION CEN T RA L

Here we arrive at the very heart of 2023’s survey as we seek to uncover deal data and further illuminate the pathways to prosperity offered by UK commercial intermediaries. We’ll examine transactional volumes and values as well as year-on-year developments, and crucially reveal just how much value NACFB Members successfully originated in 2023.

£500k - £1m

4% 18%

£1m - £5m 13%

£5m - £10m

14%

£15m - £25m

The majority of the NACFB’s broker Members originated a total of no more than £15 million in 2023, with 3% originating more than £500 million. The median average of the total value of transactions facilitated across all NACFB Member brokers in 2023 was £11,250,000.

11%

£25m - £50m £50m - £100m

£100m - £500m

£500m+

The higher lending figures in previous years were also significantly boosted by pandemic-related funding. Looking ahead, the NACFB expects the value of broker-originated transactions to stabilise and plateau in the near term.

10%

£10m - £15m

In 2023, NACFB Members facilitated an impressive £38 billion in lending, showcasing their resilience and adaptability in a challenging market. Although this represents an approximate 16% decrease from 2022’s £45 billion and a 7% drop from 2021’s £41 billion, this performance aligns with broader market trends. Bank of England data confirms that SME lending broadly decreased in the first three quarters of 2023, reflecting the overall economic climate. Despite these challenges, including rising inflation, more than a dozen successive interest rate rises, cautious lending policies, and a cost-of-living crisis, the NACFB community’s ability to generate £38 billion in lending is a testament to its commitment, adaptability, and effectiveness.

10%

£0 - £500k

5 .1 TOTAL T RANSACT IONAL VALUE

H IG H E R

lending facilitated in 2023

Asked how the total value of lending in 2023 had changed compared with 2022, a quarter (24%) of brokers shared that they had facilitated lower levels, whilst just 5% of lenders shared the same.

51%

Broker Response

47%

Lender Response

LOWE R

lending facilitated in 2023

24%

Broker Response

Lender Response

B R OADLY T H E S AME

25%

Broker Response

48%

Lender Response

NACFB | 19

5. 2 TOTA L TRANSACTIONAL DATA BY VALUE AND SECTOR In 2023, the NACFB introduced a new method for brokers to report the total value of their successful lending. Moving away from mean averages, which can be less insightful, this year’s approach presents a cross-sectional view of lending values, segmented by brokers’ primary business activities. The results are categorised into two groups: property-led brokerages and those focused on business finance, including asset and leasing.

brokers reported loan originations ranging between £15 million and £25 million. To enhance understanding, the median total for each category is provided at the bottom of each column.

For example, within the commercial mortgage sector, 22% of

It’s important to note that the figures represent the total value of transactions facilitated by the brokerages, not their profit, turnover, or commission earnings. This refined methodology provides a clearer and more nuanced understanding of the lending landscape as navigated by NACFB Members.

Total amount originated by property finance-led brokerages in 2023

Total amount originated by non-property finance-led brokerages in 2023

Total amount transacted in 2023

Buy-to-let mortgages

Commercial mortgages

Property development finance

Short-term & bridging finance

Total amount transacted in 2023

Invoice finance

Leasing & asset finance

M&A finance

Trade finance

Unsecured finance

£0 - £500k

21%

19%

£0 - £500k

50%

100%

13%

£500k - £1m

£1m - £5m

12%

17%

37%

22%

£1m - £5m

21%

18%

25%

£5m - £10m

14%

£5m - £10m

21%

26%

13%

£10m - £15m

15%

11%

£10m - £15m

14%

12%

£15m - £25m

12%

22%

15%

£15m - £25m

21%

10%

50%

£25m - £50m

14%

16%

15%

£25m - £50m

12%

25%

£50m - £100m

10%

11%

£50m - £100m

10%

£100m - £500m

11%

16%

£100m - £500m

£500m+

Median total transacted

£15,000,000

£13,750,000

£11,250,000

£8,750,000

Median total transacted

£87,500

£10,000,000

£8,750,000 £8,750,000 £9,450,000

20 | NACFB

5. 3 AV ERAGE SIZED LOANS IN 20 2 3 In 2023, the average loan size successfully originated by NACFB Members across all finance types was £509,000. This represents a 10% decrease from the 2022 average of £563,000, which had previously marked a 23% increase from 2021’s average of £459,000.

15% 12% 7%

3% £0 - £5k

£5k - £15k

£15k - £30k

11%

5% 3%

£30k - £50k

£50k - £75k

£75k - £100k

£100k - £150k

£150k - £200k

£200k - £300k

£300k - £400k

£400k - £500k

£500k - £750k

£750k - £1m

£1m - £2m

£2m - £5m

0.5%

£5m - £10m

0.5%

£10m - £20m

£20m - £30m

5. 4 AV ERAGE SIZED LOANS BY BR O KE RAGE TY PE Section 5.3’s data on the average loan size for the entire NACFB membership doesn’t accurately reflect the diverse types of brokerages and their specific business activities. In 2023, 31% of asset and leasing brokers typically handled average transactions of approximately £69,000. In contrast, 28% of brokers focusing on commercial mortgages dealt with average loans ranging from £300,000 to £400,000 – with a mean average of £615,000 per transaction.

Average transaction size

Buy-to-let mortgages

Commercial mortgages

Regarding year-on-year comparisons, 37% of NACFB Member brokers reported higher average loan sizes in 2023 compared to 2022, whilst only 16% noted a decrease in the average deal size. Generally speaking, it would appear that average deal sizes are reverting to pre-pandemic levels across all finance types.

Invoice finance

Leasing & asset finance

M&A finance

Property development finance

Short-term & bridging finance

Trade finance

Unsecured finance

£0 - £5k

9.5%

1.2%

3.9%

£5k - £15k

4.8%

2.5%

7.1%

5.9%

5.3%

14.8%

4.2%

£15k - £30k

1.2%

5.9%

£30k - £50k

31.4%

3.7%

12.5%

£50k - £75k

2.4%

1.2%

7.1%

17.6%

16.7%

£75k - £100k

2.4%

1.2%

7.1%

19.6%

3.7%

8.3%

£100k - £150k

2.4%

3.7%

11.8%

50%

3.7%

50%

20.8%

£150k - £200k

7.1%

7.4%

7.1%

7.4%

8.3%

£200k - £300k

28.6%

11.1%

14.3%

10.5%

14.8%

50%

4.2%

£300k - £400k

16.7%

28.4%

21.4%

5.3%

11.1%

8.3%

£400k - £500k

16.7%

14.8%

7.1%

21.1%

14.8%

8.3%

£500k - £750k

7.1%

8.6%

7.1%

5.3%

7.4%

£750k - £1m

8.6%

7.1%

21.1%

11.1%

4.2%

£1m - £2m

2.4%

6.2%

50%

15.8%

4.2%

£2m - £5m

2.5%

14.3%

10.5%

7.4%

£5m - £10m

1.2%

£10m - £20m

5.3%

Median average size of transaction

£305,000

£615,000

£774,000

£69,000

£813,000

£1,800,000

£569,000

£188,000

£240,000

NACFB | 21

Type of finance

Average size of loan in 2019

Average size of loan in 2020

Average size of loan in 2021

Average size of loan in 2022

Average size of loan in 2023

Buy-to-Let finance

£356,000

£319,000

£364,000

£475,000

£305,000

Cashflow finance

£446,000

£445,000

Commercial mortgages

£519,000

£620,000

£569,000

£814,000

£615,000

Development finance

£1,571,000

£1,292,000

£1,138,000

£1,494,000

£1,800,000

Factoring & invoice finance

£372,000

£478,000

£6,956,000

£497,000

£774,000

Leasing & asset finance

£51,000

£130,000

£80,000

£81,000

£69,000

Short-term & bridging loans

£544,000

£480,000

£269,000

£625,000

£569,000

Unsecured finance

£140,000

£150,000

£128,000

£130,000

£240,000

M&A finance

£792,000

£677,000

£813,000

Trade finance

£188,000

Mean average across all finance types

£355,000

£391,000

£459,000

£563,000

£509,000

5. 5 N U MBER OF T RA NSACT IONS

50 - 99 ( 4%) 20 - 49 ( 2%)

5-9 ( 4%)

Both for brokers and lenders, the number of transactions can be equally as telling as their value. Within the NACFB, some Members focus on fewer, higher-value transactions, while others rely on a higher volume of smaller deals. In 2023, 62% of NACFB Members completed 100 or fewer transactions, a slight decrease from 65% in 2022. While this isn’t a drastic change, it aligns with broker observations of a lower transaction count in 2023.

10 - 19 (=)

1-4 ( 3%)

21% 12% 7% 3%

150 - 249 ( 2%) 100 - 149 ( 3%)

500 - 999 ( 3%)

250 - 499 ( 3%)

2,000 - 3,499 ( 1%)

1,000 - 1,999 ( 2%)

3,500+ ( 1%)

19% 9%

9% 4%

22 | NACFB

5. 6 T RA NSACTIONAL VOLUM ES BY BR O KE RAGE TY PE Section 5.5 details overall transaction volumes, and like deal values, the 2023 survey findings also provide insights into transactions by broker type. As anticipated, brokers specialising in asset and leasing facilitated more transactions (average of 200) compared to their property development broker counterparts, who averaged just

15 individual deals in 2023 – but typically of a higher ticket value. The survey also includes the median average of successfully completed transactions for each broker type, offering a clearer picture of activity across different specialisations.

Number of transactions

Buy-to-let mortgages

Commercial mortgages

Invoice finance

Leasing & asset finance

M&A finance

Property development finance

Short-term & bridging finance

Trade finance

Unsecured finance

1-4

5-9

10%

14%

16%

50%

10 - 19

12%

21%

32%

19%

50%

20 - 49

17%

25%

50%

16%

100%

21%

22%

17%

50 - 99

26%

21%

20%

16%

19%

17%

100 - 149

10%

11%

17%

150 - 249

12%

13%

250 - 499

10%

16%

11%

17%

500 - 999

10%

1,000 - 1,999

12%

2,000 - 3,499

3,500 - 4,999

5,000 - 7,499

7,500+

Median total

200

100

NACFB | 23

5. 7 G OV ERNM ENT-BACKED LOA N SC HEM ES By September 2023, UK businesses had secured over 20,000 facilities, amounting to £4.3 billion, via the first two phases of the British Business Bank’s Recovery Loan Scheme (RLS). The scheme’s third iteration commenced in August 2022, with a new asset-based lending variant introduced in December 2023. As per the current schedule, the RLS is set to conclude in the summer of 2024. As of now, there has been no announcement regarding any extension or modification of the RLS. Notably, 56% of NACFB Members did not facilitate any government-guaranteed loans in 2023, a single percentage point increase from the previous year. A third of Members completed fewer than ten RLS transactions. This trend suggests that COVID’s direct impact on business conditions is rapidly diminishing, borrowers may be cautious about incurring more debt, and there is now increased competition from commercial lenders offering products on comparative terms.

Number of successful RLS loans

56%

24% 9%

0 successful RLS loans

5-9 successful RLS loans

1-4 successful RLS loans

20 - 49 successful RLS loans

10 - 19 successful RLS loans

0.5%

250+ successful RLS loans 150 - 249 successful RLS loans

100 - 149 successful RLS loans

50 - 99 successful RLS loans

24 | NACFB

6 .1 LE VE LLING UP AND AC R OSS

LE VEL CROSS ING

The 2023 NACFB survey data presents a refined focus on the nuances and variances in funding across the UK’s regions. It’s perhaps not surprising that brokers reported the most significant funding growth in Greater London and the South East, securing the top two positions.

As our 2023 journey continues, much like a train traversing diverse landscapes, we’ve observed the world of finance through the perspectives of brokers, lenders, and their clients. Our stops have included insights into various business sectors, loan sizes and volumes, borrower motivations, and the broader UK lending scene. Next, we change tracks and shift to a more localised perspective, as we explore the NACFB community’s activities through the unique landscapes of each region.

REGIONAL FUNDING METRIC

THE NORTH EAST OF ENGLAND

NACFB Members serving this region

43%

Total transaction share in this region from NACFB Members

Notably, the North West of England, ranking third, also experienced the highest average number of transactions per NACFB brokerage in 2023, with an impressive 505 transactions per firm. This highlights the region’s burgeoning financial activity. In fourth place, the West Midlands also demonstrated notable financial growth. NACFB Member firms in this region reported the highest average total funding, reaching £15 million per firm. This could also indicate robust economic momentum in the West Midlands.

THE NORTH YORKSHIRE 6.1 The North 6.1 The North 6.1THE TheEAST North WEST OF AND THE East of England East of England East of England MIDLANDS ENGLAND HUMBER 2023 data 2023 data 2023 data

THE WEST MIDLANDS

THE EAST OF ENGLAND

51%

45%

52%

53%

43%

11%

14%

Average 2023 loan size in this region (mean)

£474,000

£297,000

£328,000

£317,000

£305,000

£500,000

Average 2023 property finance led loan size in this region (mean)

£660,000

£413,000

£423,000

£418,000

£347,000

£660,000

Average 2023 non-property finance led loan size in this region (mean)

£77,000

£224,000

£136,000

£177,000

£125,000

£100,000

Average 2023 total originated by NACFB Members operating in this region (median)

£12,500,000

£13,750,000

£11,250,000

£8,750,000

£15,000,000

£8,750,000

Average number of transactions per NACFB Member in this region

389

505

268

205

129

Regional growth ranking (regions that brokers have seen highest growth in 2023)

Joint 7th (of 12)

3rd (of 12)

Joint 5th (of 12)

Joint 7th (of 12)

4th (of 12)

9th (of 12)

NACFB | 25

An intriguing aspect of the survey was the division of average transaction sizes into property-led and non-property-led financing. The split reveals a significant disparity: brokers in non-property sectors rely more on transaction volume, which usually comprises smaller individual deals. This insight underscores the different strategies and challenges faced by brokers across various sectors.

schemes are tailored not only to provide capital for business growth but also to stimulate local employment and benefit the regional economies. The NACFB, in collaboration with the British Business Bank, continues its efforts to inform intermediaries about the various regional and devolved schemes available. This initiative ensures that brokers are well-equipped to guide their clients in accessing these valuable resources, fostering growth and development across the UK’s diverse regions.

F U N D I N G FUTURE GROWTH In 2021, the Government’s commitment of £1.6 billion to regional funding programmes marked a significant investment in the UK’s smaller businesses. This funding, covering new and existing programmes, aims to support businesses in early-stage development and capital across the UK’s regions and devolved nations. The nature of the funding is diverse, encompassing grants, loans, and schemes like discounts or rebates for specific expenses, including investment in new technology. These

GREATER LONDON

THE SOUTH EAST OF ENGLAND

THE SOUTH WEST OF ENGLAND

WALES

SCOTLAND

NORTHERN IRELAND

REGIONAL FUNDING METRIC

65%

62%

48%

34%

29%

17%

NACFB Members serving this region

25%

23%

Total transaction share in this region from NACFB Members

£1,074,000

£435,000

£427,000

£166,000

£138,000

£63,000

Average 2023 loan size in this region (mean)

£1,333,000

£491,000

£495,000

£225,000

£175,000

N/A

Average 2023 property finance led loan size in this region (mean)

£435,000

£353,000

£66,000

£48,000

£63,000

Average 2023 non-property finance led loan size in this region (mean)

£12,500,000

£11,250,000

£8,750,000

£1,750,000

£6,250,000

£3,750,000

Average 2023 total originated by NACFB Members operating in this region (median)

469

379

170

138

Average number of transactions per NACFB Member in this region

2nd (of 12)

1st (of 12)

Joint 5th (of 12)

Joint 10th (of 12)

12th (of 12)

Regional growth ranking (regions that brokers have seen highest growth in 2023)

26 | NACFB

DYNA M I CS VA L L EY

In intermediary-led SME lending, three key players interact: the SME client, the broker, and the lender. Our next section delves into the crucial broker-lender dynamic. We’ll explore the formation and evolution of

these relationships, the interplay between the two groups, and the subtle shifts in lending appetite that have influenced small business financing in 2023.

7. 1 T HE TY PES OF L ENDER SELECT ED In a question returning for a second year, the NACFB aimed to understand the transactional distribution across different lender types, specifically identifying the most common lenders used by intermediaries for successful business loan placements in 2023.

P2P lenders ( 1%) Own book ( 4%)

0.5%

CDFIs ( 0.5%)

The starkest observation was a nearly 18% decrease in transactions completed through challenger banks, despite them holding the largest market share. This aligns with brokers’ observations of a strong 2022 for challenger banks followed by a perceptible tightening of criteria in 2023. Notably, there was a significant increase in transactions involving NACFB Members who provide ‘own book’ lending, now accounting for about 7% of all successful deals. The survey also uncovered that a significant 93% of NACFB Members successfully facilitated transactions through challenger banks at some point in 2023. Furthermore, more than a quarter (26%) of Members placed at least one loan with a Community Development Financial Institution (CDFI), despite these representing less than 1% of the total transactional value.

Specialist lenders ( 4%)

25%

Other (=)

31%

Challenger banks ( 18%)

29%

High street banks ( 5%)

NACFB | 27

7. 2 LENDER APPETITES TO L END Lender appetites are ever-changing, and over the past five years, brokers have navigated their fluctuating nature and the impact on businesses in various sectors and regions. For commercial brokers and their SME clients, these shifts in lending appetite often crucially influence access to capital and growth opportunities. In 2023, over half of NACFB Members observed a decrease in lending appetites across all lender types, whilst only 14% noted any noticeable increase.

In 2023, when NACFB Patron lenders were directly asked to evaluate their own willingness to lend to small businesses through intermediaries, half reported their lending levels were moderately or significantly higher than in 2022. Only 12% of these commercial lenders indicated any reduction in their lending appetite during the year.

Lendersʼ views on their own appetites to lend Significantly higher than it has been previously

16%

Moderately higher than previously

Broker perceptions of lender appetites in 2023

34%

38%

Neutral

14%

52%

35%

INCREASED

DECREASED

STAYED BROADLY THE SAME

How brokers adapted to reduced lender appetites

Sought alternative lenders

11%

Significantly lower than it has been previously

Changes in lending appetite are both standard and prudent in the finance industry; it's unrealistic to expect the 'funding tap' to always be on. Encouragingly, this year's survey data reveals effective communication from lenders regarding policy and appetite changes. In 2023, 55% of NACFB Members reported that lenders were effective or very effective in communicating these changes to their broker panels.

48%

No perceived reduction in lending appetites Diversified services

Moderately lower than previously

According to brokers, how effectively did lenders communicate changes in appetite

33% 7%

Broadened client base

Very ineffective

Reduced lending volume

Ineffective

12%

Other

10%

Very effective

45%

Effective

Commercial finance brokers, particularly NACFB Members, are well-versed in resilience and adaptability, often adjusting to changing lender appetites and external factors. Among those who noticed a reduction in lending appetite, nearly half responded by seeking alternative lenders, demonstrating their resourcefulness. Notably, only 5% reported a decrease in their overall lending volume as a result of these shifts. Neutral

32%

28 | NACFB

Movement to alternative lenders?

Moderate shift away

Strong shift away

24%

Strong shift towards

The NACFB surveyed Members to understand how their attitudes towards high-street lenders changed in 2023, if at all. Amid anecdotal evidence of high-street banks adopting tighter lending criteria and a more conservative approach to loan management, about half (48%) of NACFB Members reported no change in their relationship with these banks, whilst a quarter indicated some form of deterioration in relations.

Broker relationships with high street lenders 8%

Improved significantly 14%

Improved slightly

48%

Remained the same 18%

Worsened slightly

20%

No shift

48%

Moderate shift towards

Worsened significantly

No answer

In 2022, 70% of transactions by NACFB Members were placed with either specialist lenders or challenger banks. Looking ahead, the NACFB surveyed intermediaries about their expectations for a continued shift towards the use of alternative lenders in 2024. Nearly three-quarters (72%) of respondents anticipate either a moderate or significant increase in the use of alternative lenders in the coming year.

decline a broker’s client is just as critical as knowing why a transaction was successful. Through 2023’s survey data, the NACFB observes relative alignment in broker and lender perspectives, with both cohorts identifying a decrease in sectoral appetite as the most frequent cause for application denials. Interestingly, brokers are three times more likely than lenders to attribute interest rate changes as a reason for rejection. Moreover, a poor credit history also remains a persistent challenge for business owners in need of growth finance, perhaps an unwanted pandemic legacy.

7. 3 W HY LOANS WERE DECL INED The initial interaction between a broker and lender typically begins when a broker submits an application on behalf of their SME client. This process involves negotiation, gathering information, and forming an understanding of the client’s needs, ideally leading to a successful drawdown. However, this outcome isn’t guaranteed. Lenders, despite their inclination to approve loans, often face various obstacles that can lead to an application’s rejection. Understanding why a lender might

BROKER RESPONSE IN 2023 LENDER RESPONSE IN 2023

26%

17%

16% 8%

0.5% 4% 0.5%

Incomplete application /paperwork

Amount too high

9% 1%

Poor credit history

9% 0% 5%

Not enough collateral Sector is deemed too risky

10% 9%

Inadequate business plan

Debt utilisation too high

12% 2% 1%

Outside of your criteria

Lack of strong cashflow

13%

Reduced sectoral appetite

Valuation mismatch

3% 1%

Interest rate changes

Products withdrawn

4% 4%

Other No deals declined in 2023

NACFB | 29

7. 4 LEN D ER REFERRAL ACTIVITY In situations where an intermediary-led transaction is declined, brokers often have multiple alternative funding sources to offer SMEs, highlighting the advantages of using commercial finance brokers. But what about small businesses that approach lenders directly and face rejection? The NACFB sought to understand the follow-up process for these enterprises from Patron lenders. Surprisingly, 35% of commercial lenders surveyed admitted they lack a formal referral system for direct enquiries that are declined, though this is a 5% improvement from last year. Still, this leaves a considerable number of UK businesses without guidance on where to turn after a funding denial. The NACFB aims to bridge this gap, believing that many of these rejected applications could find success with the aid of an NACFB Member. Notably, the proportion of lenders who refer declined SME clients to commercial brokers or alternative financing options, like equity funding, has decreased in 2023 compared to the previous year.

Bank Referral Scheme (BRS) ( 3%) No direct applications ( 4%)

No referrals ( 5%)

16%

35%

Signpost to government-backed schemes ( 1%)

10%

7. 5 F I N A NCE TY PES EXPERIENCING BI G G EST 2023 DECL INE

Commercial mortgages

Section 7.3 highlights a diminished sectorial appetite as the leading perceived reason for loan application rejections. Exploring this notion further, the data sheds light on which finance types were most affected in 2023, according to brokers. Notably, the most significant declines were observed in property-related finance types. Anecdotal evidence also suggests a marked increase in the cost of unsecured lending throughout the year, corroborated by 16% of NACFB Members who identified this finance type as experiencing the greatest decline in 2023.

Unsecured finance

Refer to another lender ( 2%) Refer to a broker ( 4%)

26%

Refer to alternative financing (equity etc) ( 2%)

Signpost to grant funding ( 4%)

26% 22%

No perceived decline

16%

Buy-to-let mortgages

12%

Property development finance

11% 7%

Leasing & asset finance Short-term & bridging finance

Invoice finance

M&A finance

Revenue-based finance

Pension-led finance

Trade finance

30 | NACFB

7. 6 T HE POWER O F CO LLABORATION In late 2023, NACFB Patron lenders were specifically asked to evaluate their attitudes towards and relationships with commercial finance brokers, for both that year and looking further ahead into 2024. Often, challenging market conditions can fortify professional bonds as parties seek stability and trust in familiar relationships. A significant 61% of the lenders reported increased collaboration with brokers in 2023 as a direct response to economic challenges, whilst only 1% indicated any desire to reduce collaborative efforts. This overwhelmingly positive response underscores the value of trusted relationships in the finance industry.

Lender attitude to broker collaboration

Still evaluating

Collaborating less

No change

Such a positive outlook on relationship-led lending was further confirmed when lenders were asked about the anticipated evolution of their relationships with brokers in 2024. An overwhelming 98% of surveyed commercial lenders expected their relationships with brokers to either strengthen or at the very least remain consistent. Notably, not a single lender reported any intention to either reduce ties with intermediaries or to seek alternative collaborations. These findings suggest a robust and secure future for intermediaryled lending based on strong relational foundations.

61%

Collaborating more

36%

How will broker relations evolve in 2024? Strengthen

79%

Remain the same

19%

Weaken

Explore alternative collaborations

Unsure

NACFB | 31

7. 7 LEN D ER/ BROKER PA NELS I N 2023 In 2023, the average NACFB Member had 96 lenders on their panel, a decrease from the 2020 average of 106, marking a nine-percentage point drop over that three-year period. Meanwhile, the average NACFB Patron lender worked with a panel of 893 commercial finance brokers and introducers, with 53% reporting an increase in this number compared to 2022. When asked about the frequency of transactions, lenders reported an average ‘active panel’ size of 227 brokers and introducers, with whom they dealt more than twice a year. In 2023, NACFB Patron lenders were surveyed about the quality of loan applications received from brokers compared to the previous year. About a third (31%) of the lenders noted an improvement in the quality of these intermediary-led small business loan applications.

Quality of intermediary-led loan applications

Improved significantly

Improved slightly

5% 26% 55%

Remained the same Worsened slightly

Worsened significantly

13%

32 | NACFB

CH ALLENGE HILL

Every year brings unique challenges for finance professionals, and 2023 was no exception. Amidst the lingering effects of a global pandemic, a combination of significant economic factors heavily influenced UK businesses and the wider market, making it a particularly tough year. In this section, we delve into some of these challenges and explore how the intermediary-led lending community navigated and responded to them.

8 .1 COMPE T ING E CONOMIC FACTORS Last year, the global economy demonstrated remarkable resilience, navigating through high inflation and significant interest rate hikes. The US and India performed better than expected, while Europe’s growth was slower. Surprisingly, the UK managed to avoid a recession. However, according to industry anecdotes, the UK experienced conditions akin to a recession throughout much of the year. The Bank Rate in the UK increased from 4% in February 2023 to 5.25% by year’s end, marking a rise of 1.25 percentage points. Considering this higher interest rate environment, the NACFB sought insights from lenders on its impact on loan completions. 43% of commercial lenders reported that the elevated interest rates led to a decrease in their total completions in 2023, while another 25% observed no significant change in their completion rates.

Interest rate impact on completions

16%

25%

43%

17%

I N C REA S ED CO MP LETION NUMBERS

NO CHAN G E

R E DUC E D COMPLE T ION NUMB E RS

ST ILL E VALUAT IN G

From the viewpoint of commercial brokers, the higher interest rate environment in 2023 also influenced their SME clients' eagerness or readiness to apply for funding. The year saw a notable shift, with two-thirds (66%) of SMEs experiencing a slight or significant decrease in their appetite for seeking funding.

Interest rate impact on SME willingness to borrow Increased significantly

12% 8%

Increased slightly No impact

14%

Decreased slightly Decreased significantly

38% 28%

NACFB | 33

In 2023, the UK's cost of living crisis placed significant pressure on small business owners, reducing consumer spending power and escalating operational costs. This strain not only squeezed profit margins but also posed challenges to business sustainability.

SME inflationary concern Very concerned

50%

47%

N EGAT I VE I MPACT

BROADLY NO IM PACT

POSIT IVE IM PACT

8. 2 CO NSUM ER DUTY The introduction of the Financial Conduct Authority’s (FCA) Consumer Duty in the summer of 2023 was both welcomed and viewed as challenging. At a high level, the Consumer Duty aims to enhance the standards of care that financial firms owe to their customers, ensuring that their interests are rigorously protected and that they receive fair value in the products and services offered. For most NACFB Members and lender Patrons, these new principle-based rules were seen as a formalisation of existing professional practices and expectations, with many in the industry already operating in line with the Duty’s ethos.

Neutral Not very concerned

Not at all concerned

Higher inflation was a key driver of the rising interest rates in 2023, leading to more expensive borrowing options and tightening cash flows for small businesses. Additionally, it created a difficult trading environment by increasing costs and diminishing consumer spending power. An overwhelming 89% of surveyed NACFB Member brokers reported that inflation had caused either moderate or significant concern among their clients. This concern is likely to have influenced these businesses' decisions regarding potential borrowing.

How lenders adapted to Consumer Duty Not applicable - Consumer Duty doesn’t apply to specific operations

However, the NACFB highlighted concerns regarding the consistent application of the new guidance. The trade body pointed out that the rules might not be uniformly applied through the intermediation model, creating uneven standards across the industry. Specifically, the trade body raised issues with government ministers and the regulator about brokers’ capacity to fulfil the Duty’s requirements. This concern stemmed from the fact that many lenders had not shared all necessary information required by the Duty throughout their distribution chain, hindering brokers’ ability to present complete and compliant information on their behalf. A quarter (25%) of surveyed commercial lenders shared that they had made no changes to their lending practices, with just 4% outlining that they had to majorly overhaul their processes.

53%

Somewhat concerned

Brokers surveyed were questioned about the impact of this widespread crisis on their clients' creditworthiness. Reflecting the challenging economic climate, 50% of the brokers indicated that these conditions adversely affected their clients' borrowing capabilities.

Impact of cost of living on creditworthiness

36%

No changes made Practices already aligned with the Duty’s requirements

29%

Unsure

Evaluations are still ongoing

Minor adjustments Made subtle changes to better align with the Duty

18%

25%

Comprehensive review - Conducted a thorough review of practices, leading to some modifications

Major overhaul - Significant changes were made to ensure compliance with the Duty

21%

34 | NACFB

When surveyed on their levels of confidence in interacting with the intermediary market after the implementation of the FCA’s Consumer Duty, 53% of commercial lenders expressed being somewhat or very confident in their dealings with brokers. This response appears to mitigate concerns about the potential impact of the Consumer Duty on both processes and relationships.

Consumer Duty’s impact on broker’s lender panels

Unsure

A significant reduction

Increased due to other reasons

0.5%

A slight reduction

Increased due to Consumer Duty

Post-Consumer Duty confidence in broker engagement Very unsure: The market lacks clarity and I’m uncertain how to engage with brokers effectively

Somewhat unsure: There’s limited guidance and clarity on engaging with brokers

Neutral: We neither feel particularly confident

Very confident: There’s clear guidance and we understand how to engage with brokers effectively

26%

38%

Somewhat confident: There’s some guidance, but some areas could be clearer

27%

When queried about the impact of the FCA’s Consumer Duty, the broker community largely mirrored the sentiments of their lender counterparts. Over two-thirds (68%) indicated that the Duty had no significant effect on the dynamics of their relationships with lenders. Whilst just under a fifth of the brokers reported a negative impact, this figure was substantial but not as high as some had initially feared.

Broker view on Consumer Duty's impact on lender relations Significantly positively impacted

83%

No change

Concerns about brokers needing to shrink their lender panels due to the Consumer Duty were largely unfounded. Only 10% of brokers reported a reduction in their panels as a consequence of the Duty. While this represents a significant decrease, it was certainly less drastic than initially anticipated.

Broker view of regulatory impact on their growth and competitiveness Strongly positive impact

5% 16%

Positive impact

45%

Neutral Negative impact Strongly negative impact

26%

Slightly positively impacted

11% 68%

No impact Slightly negatively impacted

15%

Significantly negatively impacted

In 2023, the FCA's Consumer Duty emerged as a key regulatory development amidst a broader spectrum of legislative changes. Surveyed brokers were split on its impact: one third anticipated that the evolving regulatory landscape could negatively affect their growth and competitiveness. However, the majority (45%) held a neutral stance on these changes and their potential effects.

NACFB | 35

8. 3 I MPACT OF BASEL 3.1 The upcoming Basel 3.1 lending reforms, introducing stringent capital requirements, are expected to have a notable impact on some bank lenders by requiring them to hold higher capital reserves. This increase in capital reserves could potentially limit their ability to provide commercial loans due to more cautious lending practices. By Q3 2023, some lenders had already started incorporating the anticipated additional costs into their offerings. These changes might make it more difficult for UK SMEs to secure commercial loans in the medium term, as banks may either limit loan availability or increase borrowing costs to offset the risk from new capital requirements.

reforms. However, it’s important to note that not all lenders surveyed will be affected by the capital requirement changes. Focusing specifically on challenger banks, which accounted for a significant portion of intermediary-led lending in 2023, 40% anticipated an impact on funding availability and costs. The Bank of England’s Prudential Regulatory Authority (PRA) stated in late 2023 that the implementation of Basel 3.1 regulations is expected to have a “low” impact on UK banks. They envision that the estimated increase in tier one capital requirements will be about 3%, a reduction from an earlier forecast of 6%. These rules are scheduled for introduction in July 2025 and are expected to be fully integrated by 2030.

When surveyed, only 15% of all commercial lenders predicted an impact on the availability and cost of funding due to these

Lender perspective: Basel 3.1 impact on future lending

12%

47%

40%

R ED UCT I O N IN FU T UR E LENDING

INCREASE D PRICE OF FUT UR E L ENDING

NOT SUR E AT T H IS T IME

NO C H ANG E TO F UT UR E LE NDIN G

36 | NACFB

FUTUR E LANE As we arrive at our journey’s end, the final stop offers a vantage point from which to gaze into the future. Armed with insights gathered throughout our comprehensive exploration of 2023, the intermediaryled lending community stands ready to

embrace emerging opportunities and tackle new challenges with confidence. In this concluding section, we will first analyse the sectors that flourished and those that faced difficulties over the past year. Then, we will highlight areas primed for growth, identify the most significant threats looming over the intermediary-led lending landscape, and evaluate the prevailing sentiment of optimism for small business borrowers for the year ahead.

9. 1 LENDER SECTORAL REVIEW The NACFB’s lending community has steadfastly navigated through numerous ‘once in a generation’ crises over the past decade, consistently supporting UK businesses.

Lenders also anticipate the real estate sector to be a significant growth area in 2024.

In the survey, the SME real estate market was identified by commercial lenders as a focal area. It not only attracted the most enquiries but also experienced the sharpest decline, indicating a potential normalisation from its 2022 peak.

Another key finding is the areas of most lending reluctance, with 12% expressing most hesitancy to finance SMEs in the agriculture, forestry, and fishing sector. Conversely, 10% showed a heightened interest in lending to retail and manufacturing sectors in 2023, marking an uptick from the previous year’s data on both fronts.

SME business group

2023 business sector with most enquiries

2023 business sector with largest drop in enquiries

2023 business sector with most appetite to lend in

2023 business sector with least appetite to lend in

Business sector predicted to grow most in 2024

Agriculture, forestry & fishing

12%

Mining & quarrying

Utilities (electricity, gas, water)

Manufacturing

10%

12%

Construction

13%

29%

18%

12%

Wholesale & retail trade (including vehicle repair)

10%

Transport & storage

Accommodation & food services

10%

Information & communication

Financial & insurance activities

Real estate activities

40%

26%

38%

17%

29%

Professional, scientific & technical activities

Business administration & support services

Public administration & defence

Education

Human health & social work activities

Arts, entertainment & recreation

10%

NACFB | 37

9. 2 BR O K ER SECTORAL REVIEW The frequency of borrowing enquiries received by brokers from specific sectors often reflects those sectors’ economic health. It’s crucial to understand that not every enquiry translates into successful financing, and a surge in enquiries doesn’t necessarily imply a sector’s distress.

construction. Mirroring observations from lenders, both these sectors also experienced a significant reduction in enquiries, suggesting a shift towards normalcy after a period of heightened activity. Looking ahead to 2024, brokers have identified the transport and storage sectors, along with manufacturing, as areas to watch, broadly in line with lenders’ forecasts.

In 2023, brokers saw the majority of their enquiries coming from the real estate sector, closely followed by

2023 business sector with largest drop in enquiries

2023 business sector perceived as least likely for lenders to lend to

Business sector predicted to grow most in 2024

Mining & quarrying

0.5%

Utilities (electricity, gas, water)

0.5%

Manufacturing

13%

Construction

16%

25%

16%

Wholesale & retail trade (including vehicle repair)

13%

Transport & storage

10%

Accommodation & food services

12%

22%

Information & communication

0.5%

Financial & insurance activities

Real estate activities

39%

15%

14%

31%

Professional, scientific & technical activities

Business administration & support services

Public administration & defence

Education

Human health & social work activities

Arts, entertainment & recreation

0.5%

SME business group

2023 business sector with most enquiries

Agriculture, forestry & fishing

38 | NACFB

Brokers’ perceived biggest threats/challenges 31%

Rising interest rates

9. 3 BI G G EST THREATS TO LEND I NG COM M UNITY

Reduced lender appetites

Both NACFB Members and Patrons, seasoned by their experiences, remain alert and prepared to tackle a spectrum of threats, both familiar and unexpected, predictable, and sudden. The Association sought insights from both groups on what they perceive as the greatest threat to their commercial finance lending activities. Whilst operating in the same industry, lenders and brokers face distinct challenges: lenders must grapple with service level dips and talent acquisition, while brokers navigate regulatory reporting and reputational issues. This section reveals the diverse risk factors identified by survey respondents in 2023.

10%

FCA’s ‘Use it or lose it’ approach to authorisation

Lack of new talent

Artificial intelligence (AI) and automation

Other regulatory tightening

Moves towards full commission disclosure

Shrinking client base

Increased cost of Professional Indemnity Insurance (PII)

Threats from Claims Management Companies (CMCs)

Technology platforms

Industry consolidation

Reduced lender panels

Starting with brokers, where for 31% of NACFB Members, the primary concern causing restless nights was the rise in interest rates. Coupled with worries about increased lender risk appetites (10%), it appears that brokers are primarily troubled by external factors outside their direct influence – a trend that continues from 2022.

Increasing instances of fraud

Legacy/succession planning

Other

Lenders’ perceived biggest threats/challenges Lenders, in line with their broker peers, also view rising interest rates as a significant threat, with nearly a third (30%) citing it as their top concern. Higher rates not only affect the terms lenders can offer to clients of NACFB Members, but they also alter their risk appetites and increase their own borrowing costs from funders, as noted by 16%.

30% 21% 16%

9% 6%

Rising interest rates

Funding line disruption Lack of borrowing appetite

Staffing issues (underwriting/ BDM)

Increased fraud

Regulatory tightening

Technology platforms

Increased competition

Industry consolidation

Other

Brokers’ own book lending

A striking shift from 2022, where fraud was not a major concern for lenders, 2023 saw a change in perception, with 9% of commercial lenders now identifying fraud as the foremost threat to their operations.

NACFB | 39

9. 4 LEV ELS OF OPTIM ISM The final question on both surveys to lenders and brokers respectively was to assess their levels of optimism for 2024, and it is here where we alight our journey. All change please.

Levels of lender optimism over future lending performance

Somewhat pessimistic

32%

Very optimistic

Less than a fifth (17%) of NACFB Members were pessimistic about the future whilst nearly two thirds (63%) were either somewhat or very optimistic about the future of the UK’s small business lending sector.

Levels of broker optimism over SME lending market Very optimistic

16%

47%

Somewhat optimistic

Neutral

20%

Somewhat pessimistic

16%

Very pessimistic

Neutral

48%

Somewhat optimistic

Very pessimistic

14%

Not to be outdone in the optimistic stakes, 80% of the commercial lenders surveyed were either somewhat or very optimistic about their future loan book performance.