iwoca's Q3 SME Expert Index: SMEs focus on growth and turn to Recovery Loan Scheme

We're releasing our Q3 ‘SME Expert Index’: an exclusive index of UK brokers which provides specialist insight into how and why small businesses are accessing finance.

2 November 2021
  • Growing the business is the most important reason cited by SMEs accessing finance, overtaking ‘managing day to day cash flow’ for the first time this year.
  • Prior to the Recovery Loan Scheme being extended, nearly 40% of brokers saw client demand for the scheme increase compared to Q2.
  • iwoca’s SME Expert Index provides regular snapshots of the lending market from the perspective of industry experts.

Small business owners are feeling optimistic about economic conditions for growth, according to our quarterly SME Expert Index of UK brokers.

The Index reveals that over a third (35%) of brokers reported the top motivator for applying for unsecured finance was to ‘grow the business’ – a 12 percentage point increase from the previous quarter (SME Expert Index Q2).

For the first time since the SME Expert Index launch, ‘managing day to day cash flow’ was not the most requested reason for applying for unsecured finance, dropping by 6 percentage points on the previous quarter. There was also a decline in the number of SMEs citing ‘recovery from lockdown or closure’ or to ‘bridge occasional cash flow gaps’ as a reason for needing finance.

iwoca’s Q3 SME Expert Index is based on insight from UK brokers who collectively submitted over 1000 applications for unsecured finance on behalf of their SME clients over a four-week period in August.

Demand for government-backed finance increases

Prior to the extension of the government-backed Recovery Loan Scheme (RLS), almost 40% of brokers report that they saw an increase in demand for the scheme compared to Q2. One in seven brokers (14%) saw demand increase significantly – submitting 50% or more applications compared to the previous four weeks.

Broker respondents collectively had approximately 1800 of their customers specifically requesting an RLS loan over the four-week period in August.

With more fintechs and banks receiving RLS accreditation, 75% of brokers submitted a client application to an accredited RLS lender. This compares to 20% in Q2, when brokers opted instead to wait for more lenders to be accredited or applied for a non-government backed product.

Growing demand for unsecured finance

A third (33%) of brokers said that they had submitted more lending applications for unsecured finance compared to the four weeks prior, suggesting that more businesses are looking to finance their growth.

The Index found that demand for loans under £25,000 had almost doubled compared to the Q2 SME Expert Index, making it the most requested amount in Q3 (32%). Just over half (51%) of respondents said that they had applied for less than £50,000 on behalf of their clients.

Colin Goldstein, Commercial Growth Director of iwoca, said: “The latest findings from our SME Expert Index are encouraging; it’s great to hear from brokers that the small businesses they work with are beginning to feel more confident about their future.”

“SME owners, brokers and lenders will welcome the decision by the Treasury to extend the Recovery Loan Scheme, particularly as demand continues to increase. Our economic recovery relies heavily on our six million small business owners, so it’s key that companies like iwoca continue to provide them with access to finance, including the government- backed Recovery Loans.

Broker Sam Jones from NGI Finance said: “Growth now seems to be the main driver for our clients: they’ve made it through all the lockdowns and the furlough scheme has ended, so they’re now in a position to regroup and plan ahead with a more positive mindset on how their businesses will perform. Growth inevitably costs, so using external finance to fund that keeps SME owners in control of their businesses and allows them to stay on top of the all important cash flow.”

“The first quarter of the year was really busy with the end of CBILS and – whilst I wouldn’t say demand is close to approaching the level of requests we saw then – we’re certainly having more conversations with clients and fielding an increase in enquiries than we were during the summer months.”

“After a slow roll out of RLS there’s an increased availability across the market which has naturally increased awareness and demand for the product. We’re also now seeing clients needing to repay Bounce Back Loans and CBILS, so they’re considering their options for further funding or refinance.”

SME Expert Index

Our SME Expert Index provides a snapshot on what’s driving small business owners to borrow, the trends seen in the types and value of finance being accessed, and how these patterns change as the country emerges from the pandemic. iwoca publishes this index every quarter to capture the experience of brokers working with small businesses.

We're accredited to the Recovery Loan Scheme, and distributed nearly £400 million to small businesses through the Government's Coronavirus Business Interruption Loan Scheme (CBILS). In June 2020 we launched iwocaPay – an online buy now pay later invoice checkout to help small businesses get paid. We're reaching 1.8 million businesses across the UK and Germany through our embedded finance technology, which allows businesses to access loans through a range of platforms such as accountancy software apps and digital neo-banks. We also recently launched free mental health support for all small businesses in the UK, in partnership with online therapy platform Spill.

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Charlotte is a PR & Communications specialist at iwoca.

Article updated on: 2 November 2021

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