Commercial News

Recession risk sparks concern in SMEs as demand for finance rises

Small business owners are concerned about the possibility of a recession, according to iwoca’s latest quarterly SME Expert Index.

Rozi Jones
1st August 2022
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"Encouragingly, it looks like most are still seeking finance to grow their businesses, rather than to holster it up."

With both the cost of living and of doing business climbing, over three quarters of brokers surveyed (77%) say their small business clients are worried about the possibility of a recession. By contrast, fewer than 7% of brokers reported their SME clients as ‘unconcerned’.

As small businesses face mounting economic uncertainty, their demand for finance has risen sharply. Almost half of brokers (46%) submitted more loan applications for small business financing in the last month compared to the one previous – a continuation of an upwards trend since the end of last year, with 28% citing the same in Q4 2021, and 34% reporting increased loan demand in Q1 2022.

In addition, the latest SME Expert Index saw 0% of brokers reporting significantly fewer applications.

The survey also reveals that small businesses are looking for larger loans in light of the turbulent economic forecast. Over one in eight brokers (13%) identified £200,000+ loans as most sought after for small businesses, the highest proportion since the Index was first released. Looking back at this trend, demand for loans valued above £200,000 has steadily increased since iwoca’s first Index in Q1 2021 when only 4% of brokers reported these larger loans as the most commonly requested.

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 (37%) reported managing day-to-day cash flow as the most common loan purpose for small businesses. This represents an increase of 6 percentage points since last quarter.

Nonetheless, as in Q1 2022, brokers report ‘growing the business’ as the most common reason for small business owners to apply for finance, although it’s down by 3 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.

Steven Scoufarides, head of broker channel at iwoca, said: “The current economic outlook for small businesses is precarious – we are seeing signs of an increasing number of SMEs searching for finance solutions to manage their cash flow and brace for the potential of a recession. But, as they’ve proven time and time again, 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. At iwoca, we’re working hard to adapt to small businesses’ needs, which is why we’re now offering the higher-value loans up to £500,000.”

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