Brokers are reporting rising demand for unsecured finance from SMEs, as government Covid support schemes wind down, businesses start to move out of pandemic restrictions, and the focus switches from survival to recovery and growth.
iwoca’s quarterly SME Expert Index of UK brokers found that over a third (38%) of brokers submitted more lending applications for unsecured finance in May compared to the previous four weeks.
Almost one in five brokers (19%) saw demand increase significantly – submitting 50% or more applications compared to the previous four weeks, up from 14% the previous quarter.
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.
Colin Goldstein (pictured above), Commercial Growth Director of iwoca, a fintech specialising in small business lending, said:” 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.”
Over half of survey respondents (55%) reported 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%) were most likely to request loans under £25,000, below the threshold of the government-backed Recovery Loan Scheme.
A third (32%) of brokers said the most requested reason for loan applications in May was managing “day to day cash flows”, followed by the need to “grow their business”, cited by 23%. 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.
Calvin Dexter, Director at Calvin Dexter Financial Solutions Limited, commented: “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.”
Data from the British Business Bank shows that 1.67m businesses been offered government-guaranteed loans worth £79.3bn during the Covid crisis.
The total includes 1,560,309 Bounce Back Loans (BBLS) worth £47.36 billion, 109,877 loans worth £26.39 billion through the Coronavirus Business Interruption Loan Scheme (CBILS) and 753 loans
worth £5.56 billion through the Coronavirus Large Business Interruption Loan Scheme. All these schemes closed on 31 March. New figures for the Bounce Back Loan Scheme Top-Ups reveal 106,660 loans have been approved worth £0.95 billion.
The North West reports the largest usage of CBILs and BBLS (11%) outside London and the South East (34%), ahead of the East of England (10%). The construction sector saw the highest loan take up of all sectors (17%), receiving £11.7 billion, followed by the wholesale and retail sector which accounted for 15% of all lending and the highest value of loans at £12.4 billion.
Ed Rimmer, CEO of Time Finance, cautioned that the lending landscape now needed to change: “The government’s loan schemes have given a lifeline to businesses and while we’ve been in a collective survival mode, this has been vital. But it’s time we shift our focus to a long-term solution so that businesses can once again thrive; the £79bn funnelled by banks to UK businesses has undoubtedly done its job but businesses need to turn to more sustainable solutions.
“We have navigated some undeniably challenging times and the Government’s pandemic support propped many businesses up through these troubles. But the tide is turning and if we don’t shift our focus away from the short-term, we risk losing momentum in our economic recovery.
“We are seeing some changes in business behaviours at Time Finance. Our clients are exploring their investment options with us and to me this is a significant indicator of business confidence. Whether it's through asset finance to fund equipment and technology, invoice finance to release capital from unpaid invoices, or a combination of both through asset-based lending, growth is very much on the agenda and that’s really encouraging.”