"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."
Demand for unsecured finance from SMEs is on the rise, according to iwoca’s quarterly data.
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.
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.
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.
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. 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 at iwoca, commented: ”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.”