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Small business confidence on the rise

Written by Colin Goldstein on Tuesday, 17 August 2021. Posted in Growth, Finance

It’s no secret that the health of the economy rests heavily on the health of our vibrant small businesses sector. The final easing of restrictions I hope marks the beginning of its strong recovery.

Small business confidence on the rise

It’s no secret that the health of the economy rests heavily on the health of our vibrant small businesses sector. The final easing of restrictions I hope marks the beginning of its strong recovery. Certainly, the latest findings of our SME Expert Index indicate some early signs of optimism. 

As we try to move on from the past sixteen months, it will be important to keep a close eye on how small businesses are doing. Access to finance will be crucial for them, as they look to grow and recover from the pandemic. That’s why we launched our SME Expert Index at the beginning of this year - to ask brokers how, when and why SMEs are looking to borrow; every quarter our index will explore how these patterns change as we emerge from the pandemic. 

Signs of optimism  

Now in its second publication, our latest findings seem to cast an optimistic view of the market. Over a four-week period in May, more than a third (38%) of brokers told us they’d submitted more lending applications for unsecured finance compared to the four weeks prior to that. Almost one in five brokers (19%) saw demand increase significantly – submitting 50% or more applications compared to the previous four weeks. Importantly, this demand has risen from 14% of brokers citing the same earlier this year, suggesting that SMEs are increasingly turning to credit to support their growth and recovery.

Businesses continue to look to unsecured finance to manage cash flow 

When we asked brokers what is currently driving small businesses to access finance, they told us that cash flow remains the key motivator. Almost a third (32%) of brokers said the most requested reason for loan applications in May was managing “day-to-day cash flows”. Focusing on growth came next, with 23% of brokers stating that the top reason their SME clients requested finance was to “grow their business”. Our research also found that as social distancing restrictions ease, one in five (21%) SMEs are seeking finance specifically to recover from lockdown or closure. 

Moving on to the value of applications, our research found that SMEs are looking to borrow relatively small amounts. Over half of brokers (55%) told us that the most commonly requested unsecured loan amount they had applied for on behalf of their clients was under £50,000. Nearly one in five (17%) applicants were most likely to request loans under £25,000, which is below the threshold of the government-backed Recovery Loan Scheme (RLS). 

For SME clients who requested finance through the RLS in May, a third of brokers said they waited – or are still waiting – for non-bank lenders to be accredited to the scheme. One broker – Calvin Drexter of Financial Solutions Ltd – told us that, beyond these initial signs of recovery, he “expect[s] things to pick up significantly as more alternative lenders become accredited for the Recovery Loan Scheme”. 

As we start to emerge from the pandemic, it's great to see these encouraging signs in the  lending market. Although it won’t be back to business as usual for a while, SMEs are feeling increasingly confident to use credit as a tool to help themselves – and in turn the wider economy – to get back on track. 

About the Author

Colin Goldstein

Colin Goldstein

Commercial Growth Director of iwoca

Colin is responsible for growing iwoca’s loan book through partnerships. He oversees collaborations with the likes of Xero, Tide, Funding Options and Funding Xchange. He looks after direct sales and sales through commercial finance brokers and accountants.

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