Meanwhile, 31% of intermediaries believe the market will return within six months, based on the number of loan requests they had each month before the pandemic.

Only 10% of brokers expect the market to take over 12 months to bounce back.

The latest data also revealed that 34% of brokers saw an increase in loan applications submitted in the last month compared to the previous one.

While business growth remained the most common reason for SMEs to apply for finance (reported by 43% of brokers), managing cashflow was the second most popular loan purpose, quoted by 31% of intermediaries — seven percentage points higher than the previous quarter.

This suggests that the spike in lending activity could be attributed to small businesses’ escalating need for finance, as they navigate the increasing cost of doing business, including rising energy prices and inflation.

The SME Index also revealed that SMEs were looking to access smaller bridging loans, with the most commonly requested loan size for SMEs in Q1 2022 being under £25,000 — by contrast, the most commonly requested loan size lay between £50,000 and £200,000 in Q4 2021.

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Colin Goldstein, commercial growth director at iwoca (pictured above), said: “While it’s reassuring to see the lending market returning to pre-pandemic levels of activity, the inflation crisis is taking its toll on small businesses who are feeling the pinch. 

“Rising fuel and energy costs are the main cost pressures hampering SMEs ability to combat what is expected to be a weaker than expected year of economic growth. 

“As small business owners prepare themselves for cashflow issues in the coming months, it’s vital that lenders offer flexible finance to help them through this.”

Rich Olsen, CEO at Pegasus Intelligent Corporate Finance, commented: “We’re seeing a surge in demand for finance, driven by SMEs in all sectors, who are experiencing increased sales, as well as rising costs. 

“We expect this demand to only increase, as businesses pay back their government loans.”

David Farmer, commercial finance specialist at Lime Consultancy, added: “We’re already seeing demand above pre-pandemic levels; based on what small businesses are telling us, this is because they're gaining confidence in their understanding of the ‘new normal’  and now want to grow. 

“They’re happier to carry debt and have cash, giving them more scope to move quickly and not be in the same position they were at the outset of the pandemic. 

“Whether this rising demand for finance continues remains uncertain, as we’re currently riding a wave of pent up demand with businesses who’ve consolidated over the past two years and are now actively looking to recover that ground. 

“Much will depend on the impact of inflation, consumer confidence and whether base rates stymie spending.”