Analysis: SME Lending trending upward during COVID

SME Lending under COVID

Small business

The value of new lending to small businesses is increasing, however the total amount lent (credit outstanding) is decreasing. What this means is that while more credit is flowing into the economy to support small businesses, these businesses are also paying down their loans, Figures 1a &1b.

$3.5b was lent to small business in December 2021, up 20% on $2.9b from December 2020 and 37% of $2.5b in December 2019.

• This is not a one-off trend: An average of $3.2b was lent to small business in the second half of 2021, up 24% from the average of $2.6b in the second half of 2020 and 31% from an average of $2.5b in 2019.
• Current lending to small business is at $140b, down -2% from $142b in December 2020 and -3% from $144b in December 2019.

Figure 1a: New lending to small business, $m, July 2019 – November 2021

Figure 1b: Outstanding lending to small business, $m, July 2019 – November 2021

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Medium business

On the other hand, for medium business, new lending is even stronger, while credit outstanding is also rising (Figures 2a & 2b).

• $8.6b was lent to medium business in December 2021, nearly double (up 94%) the $4.4b lent in December 2020 and up 79% from $4.8b in December 2019.
• Again, this is longer term trend: An average of $6.6b was lent to medium business in the second half of 2021, up 61% from the average of $3.9b in the second half of 2020 and 36% from an average of $4.8b in 2019.
• Current lending to medium business is at $297b, up 7% from $278b in December 2020 and 5% from $281b in December 2019.

Figure 2a: New lending to medium businesses, $m, July 2019 – November 2021

Figure 2b: Outstanding loans to medium business, $m, July 2019 – November 2021

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Interest rates declining

We are also seeing declining interest rates across all loans – both new and outstanding (Figures 3a & 3b).

• Interest rates on outstanding loans to small businesses dropped 121 basis points between July 2019 and December 2021 from 5.4% to 4.19%. For medium businesses they have dropped 137 basis points from 3.81% to 2.44%.
• We see a similar drop for new loans to small business, with 120 basis point decrease from 4.61% to 3.41%; this pattern isn’t replicated for medium business, with a drop of just 29 basis point from 2.71% to 2.32%. This is up 53 basis points from a low of 1.79% in January 2021. This is possibly reflecting the increased demand by medium businesses for loans throughout 2021 that we see in the new lending data.

Figure 3a: Interest rate on new loans to small and medium business, % pa, July 2019 – November 2021

Figure 3b: Interest rate on outstanding loans to small and medium business, % pa, July 2019 – November 2021

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The impact of COVID on SME revenues, July 2020 to July 2021

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Future expectations:

SMEs appear optimistic about their future prospects. Two in five SMEs reported a goal for the next 12 months of increasing annual revenue.

Read more about SMEs here

covid impactInterest ratesmedium businessSmall Businesssme lending