Borrowing money is, in one way or another, something that most of us are reliant on for big investments or purchases. We do it in order to get the upfront capital to start a business, to buy a home or a car, pay for emergency repairs when the boiler explodes, take a holiday or treat the family at Christmas. It’s something that many in the UK take for granted as part and parcel of modern life.
It’s also used as a gauge for the economy. If the Bank of England reports a rise in borrowing among consumers, it can be a sign of economic strength – people clearly feel confident spending money. However, it can also be a sign of increased pressure on households due to factors like inflation, economic upheaval and uncertainty, particularly when seen among groups of people who haven’t tended to borrow for everyday purchases historically. When the Bank of England announced that over February and March 2022, British consumers increased borrowing by the most in three years, it was broadly agreed that this was a sign consumers were already feeling the now very obvious growing cost of living pressure.
The most important thing about borrowing and credit is to remember that, fundamentally, it is what enables our modern economic model to succeed. When done sensibly and with the right provider at the right rates, it enables and empowers people with flexibility and control. Yet, as outlined recently in a report published by PwC and TotallyMoney, there are large swathes of the UK who don’t have access to credit from mainstream lenders. This section of the market is referred to as the financially under-served segment, representing an estimated 20.2 million (or 1 in 3) UK adults. Typically, these people are younger than those who are not under-served and below average in terms of their overall earnings. They also tend to have less money in their savings.
There is an additional portion of people in the UK who the report refers to as financially fragile, consisting of an estimated 8.9m UK adults. This segment of the UK typically uses their overdraft to pay for daily purchases, to have faced financial disruption during the Covid-19 pandemic and struggle with repayments on credit over the next year.
What struck me when reading this data was thinking about how large the numbers were and how, when combining the segments of under-served and financially vulnerable, essentially 1 in 2 UK adults struggle with access to borrowing and getting credit. If this is true, then we need to re-think what those credit criteria are, especially for commercial business lending and loans.
I can think of so many inspiring businesses backed by the Start Up Loans programme which were founded by people who were within the financially-underserved and financially fragile segments. We pride ourselves on welcoming applications for business finance from people of all walks and financial backgrounds. It’s what makes us different to most of the traditional loan providers. We also put a huge emphasis on support, working with a UK-wide network of Delivery Partners including Prince’s Trust and Virgin Start Up, whilst providing a range of online learning via our own website and in partnership with the Open University.
There is no doubt that the profiles of some loan applicants will always present more risk than others. But with the right support and guidance, we can increase their chances of success so they are no more likely to fail than people who present the ‘right’ profile. During times of economic turbulence and possible recession, which has been heralded by many as being just around the corner, we need plucky small businesses more than ever. It’s the can-do, resilient and go-getter attitudes of these businesses that generate economic excitement and momentum.
The PwC report paints a picture of millions who face, or feel they face, what could easily be argued as economic discrimination. By supporting the borrowing potential of those in the under-served community we can support their commercial potential and support the faster recovery of our economy during a period of economic uncertainty.