Why rising UK business confidence matters for SMEs

UK business leaders are more optimistic than they’ve been in a decade – and that could spell big opportunities for SMEs. 

The latest Lloyds Business Barometer shows overall confidence among firms has risen to 52%, the highest level since 2015. The number of businesses planning to take on new staff has also grown for the third month in a row, reaching its highest point in ten years.

For many SMEs, this is more than just a feel-good statistic – it’s a potential turning point. This could mark a moment when optimism, market conditions, and borrowing costs are aligning to create a rare opportunity for growth.

Confidence meets lower borrowing costs

The business confidence uplift comes alongside a welcome development from the Bank of England. Its latest decision to cut interest rates by 0.25 percentage points brings the base rate to 4%, the lowest since March 2023.

This means SMEs planning to grow should now be able to borrow money more cheaply than at any point in the past year. Whether it’s through a business loan, asset finance, or a flexible credit facility, the cost of funding expansion has come down, just as confidence in the economy is picking up.

While rates are still higher than in the ultra-low era of the late 2010s, the mix of cheaper borrowing and rising confidence has many small business owners thinking the same thing: now could be the moment to invest, hire, or expand before conditions shift again.

Timing matters

Market confidence is cyclical. The Lloyds report notes that economic optimism, now at 47% (an 11-month high), has been steadily recovering from a dip in April linked to trade condition concerns. But sentiment can shift quickly. Global events, supply chain pressures, or unexpected market downturns can reverse the trend in a matter of months.

In other words, this high-confidence period may not last. For some SMEs, that could mean considering borrowing while rates are lower and exploring growth opportunities before competitors move ahead.

However, it’s also important to recognise that not all sectors are experiencing the same uplift. The services sector saw the largest boost in July, rising 11 points to 61% confidence. By contrast, retail, manufacturing, and construction saw dips. 

Regionally, Wales remains the most optimistic part of the UK for the second month running, followed by the West Midlands and the North East. London saw a small decline in confidence, but remains the third most confident region overall. In areas where optimism is strong, holding back could mean missing out on opportunities that others in the market decide to pursue.

Turning confidence into growth

High business confidence only delivers when it sparks real action. For many SMEs, that means making strategic moves such as:

• Expanding premises to increase capacity

• Investing in technology to improve efficiency and scale

• Hiring key talent before wages rise further

• Entering new markets while customer optimism is strong

Of course, all of these steps require funding. Fortunately, the current borrowing environment makes accessing capital more attractive than it has been for some time.

Today’s SMEs have a wider range of financing options to support growth without stretching cash flow:

• Short-term credit for working capital or urgent opportunities

• Medium-term loans for larger investments like equipment or premises

• Asset finance to spread the cost of vehicles or machinery without draining reserves

• Invoice financing to unlock cash tied up in unpaid invoices and improve liquidity

Finding the right financing mix can help businesses support growth without cash flow pressures, especially with 61% expecting to raise prices over the coming year. By considering smart funding options, SMEs may be better positioned to turn rising confidence into steady progress.

Confidence won’t last forever

Periods where business confidence, hiring intentions, and borrowing conditions all move in a positive direction don’t come around often. The current environment serves as a reminder that while external conditions are rarely perfect, moments of alignment do happen, and they tend to benefit those who are prepared to consider their next steps.

For SMEs, now could be an ideal time to think carefully about funding, investing in efficiency, and positioning for growth. Planning where you want your business to be and how to get there may help you stay ahead if confidence softens later in the year. On the other hand, delaying these decisions could mean facing tougher competition, tighter lending, and a more challenging market mood down the line.

The takeaway? This is a strategic moment worth reflecting on.