Demand for unsecured finance from SMEs is on the rise, according to iwoca’s quarterly SME Expert Index of UK brokers. 

The index, which covers a four-week period in May, found that over a third (38%) of brokers had submitted more lending applications for unsecured finance compared to the four weeks prior to that, suggesting that SMEs are increasingly using credit to support their growth and recovery. Almost one in five brokers (19%) saw demand increase significantly – submitting 50% or more applications compared to the previous four weeks. This has risen from 14% of brokers citing the same in the Q1 index.

iwoca’s Q2 SME Expert Index is based on insight from UK brokers who collectively submitted over 1250 applications for unsecured finance on behalf of their SME clients in May.

Over half of respondents (55%) reported that the most commonly requested unsecured loan amount they’d applied for on behalf of their clients was under £50,000. Nearly one in five (17%) were most likely to request loans under £25,000 – this is below the threshold of the government-backed Recovery Loan Scheme.

Businesses continue to look to unsecured finance to manage cash flow 

Cash flow remains the key driver for small businesses applying for finance: 32% of brokers said the most requested reason for loan applications in May was managing “day to day cash flows”. Growth comes next, with 23% of brokers stating the top reason their SME clients requested finance was to “grow their business”. The findings also show that – as social distancing restrictions ease – one in five (21%) SMEs are seeking finance to recover from lockdown or closure.

For SME clients who requested finance through the government-backed Recovery Loan Scheme in May, a third of brokers said they waited – or are still waiting – for non-bank lenders to be accredited to the scheme.

Quantity still counts

The “approved amount” continues to be the most important factor for brokers when presenting two competing loan offers to clients, with 23% of brokers highlighting this as having the most impact (25% in Q1 SME Expert Index). “Total cost of borrowing” (19%) and “monthly interest rate” (19%) come next. However, the number of brokers concerned with the level of APR has more than halved since January from 13% to 6%.

Just over two-thirds (68%) of brokers said the “speed of receiving a decision” and that the “amount requested meets lender’s offering” were the factors which most often played a part in deciding which lender to send a submission to. This was a slight variation to the Q1 index, where speed was the key factor and only 56% were concerned with the lender matching the amount requested.

Colin Goldstein, Commercial Growth Director of iwoca:

”The SME Expert Index provides vital insights from the broker community into what SMEs need, and how lenders can best support them as they look beyond the Covid-19 crisis.

“Access to finance is crucial for small businesses who are looking to grow and recover from the pandemic. As social distancing restrictions ease and the economy opens up, it’s encouraging that SMEs are feeling increasingly confident to use credit as an important tool to help them get back on track.”

Calvin Dexter, Director at Calvin Dexter Financial Solutions Limited added:

“It’s certainly not business as usual for the unsecured lending market, but I’m seeing signs of recovery and I expect things to pick up significantly as more alternative lenders become accredited for the Recovery Loan Scheme.

“Over the coming weeks I believe we’ll see a big shift to unsecured lenders as small businesses who ordinarily turn to the banks for support, will require alternative options when they realise the support is not forthcoming.

“In the meantime, business owners will have to continue to carefully manage cash flow and be alert to seek early support should additional cash be required for an opportunity or to put out a fire. This is where the unsecured loan market can assist promptly and effectively.”

SME Expert Index

This SME Expert Index from iwoca provides a snapshot on 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 as the country emerges from the pandemic. iwoca will be publishing this index every quarter to capture the experience of brokers working with small businesses.

iwoca distributed nearly £400 million to small businesses through the Government's Coronavirus Business Interruption Loan Scheme (CBILS) and in June 2020 launched iwocaPay – an online buy now pay later invoice checkout to help small businesses get paid. The lender is reaching 1.8 million businesses across the UK and Germany through its embedded lending technology, which allows businesses to access loans through a range of platforms such as accountancy software apps and digital neo-banks. iwoca has also partnered with Mental Health UK on research to identify the needs of small business owners, and will soon launch a tailored mental health support package.