Growth Remains Top Driver for SME Financing Amid Economic Uncertainty

As small businesses face mounting economic uncertainty, their demand for finance has risen sharply, with 77 per cent feeling worried about the possibility of recession; according to iwoca‘s latest quarterly SME Expert Index.

iwoca’s Q2 2022 SME Expert Index is based on insight from UK brokers who collectively submitted over 1350 applications for unsecured finance on behalf of their SME clients in June.

With both the cost of living and of doing business climbing, over three-quarters of brokers surveyed say their small business clients are ‘worried’ about the possibility of a recession.

By contrast, fewer than seven per cent of brokers reported their SME clients as ‘unconcerned’.

Demand for finance increases as small business owners contend with rising inflation

Almost half of brokers submitted more loan applications for small business financing in the last month compared to the previous one, marking the continuation of an upwards trend since the end of last year, with 28 per cent citing the same in Q4 2021 and 34 per cent reporting increased loan demand in Q1 2022.

In addition, the latest Index saw zero brokers reporting significantly fewer applications.

The survey also reveals that small businesses are looking for larger loans in light of the turbulent economic forecast.

Thirteen per cent of brokers identified £200,000+ loans as the most sought-after for small businesses, the highest proportion since the Index was first released.

In retrospect, demand for loans valued above £200,000 has steadily increased since iwoca’s first Index, originally published in Q1 2021, when only four per cent of brokers reported these larger loans as the most commonly requested.

iwoca has responded to this growing appetite for high-value loans in the small business sector by more than doubling the maximum size of its core lending product, Flexi-Loan, allowing small business owners to access business loans up to £500,000, up from a previous lending cap of £200,000.

Managing cash flow is a key priority amid the economic storm

This heightened demand for financing, and larger amounts of it, suggests small businesses are gearing up for financial strain: in particular, cash flow issues.

Over a third of brokers reported managing day-to-day cash flow as the most common loan purpose for small businesses, representing an increase of six percentage points from the previous quarter.

Nevertheless, as in Q2 2022, brokers report ‘growing the business’ as the most common reason for small business owners to apply for finance, although it’s down by three percentage points since Q1.

So, whilst managing day-to-day cash flow is becoming more important, small businesses are continuing to seek loans to finance broader growth ambitions.

In light of the increasing number of SMEs searching for financial solutions to manage their cash flow, Steven In Scoufarishead of broker channel at iwoca, reassures that “small businesses are resilient and will shield themselves against this economic threat in every way they can.”

“Encouragingly, it looks like most are still seeking finance to grow their businesses, rather than to holster it up,” he confirms.

Leanne Barry

Citing the increase in loan applications following the conclusion of the Government-backed recovery loan scheme, Leanne Barrya broker at LB Finance Solutions Ltdadded: “This is mainly from businesses that either did not manage to source any government-backed funding or indeed have already used any funding they received for cash flow and are now needing further funding to stay afloat.”

This SME Expert Index from iwoca provides a snapshot of what’s driving small business owners to borrow, the trends seen in the types and value of finance being accessed, and how these patterns change over time. iwoca publishes this index every quarter to capture the experience of brokers working with small businesses.

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