iwoca SME Expert Index: One in three brokers say lending market has returned to pre-pandemic levels

- Nearly one in three (30%) brokers believe the UK SME lending market has returned to levels seen before the outbreak of the Covid-19 pandemic

- Over a third of brokers (34%) say small businesses’ applications for finance were up last month, compared to the four weeks prior

- Heightened demand for loans amidst rising business costs, as 31% of brokers cite ‘managing day-to-day cash flow’ as the top motivator for small business owners applying for finance, up from 24% in Q4 2021

- 39% of brokers are satisfied with the Recovery Loan Scheme ending in June (and only 18% dissatisfied), indicating a readiness in the market to return to pre-pandemic business

The small business lending market has already returned to pre-pandemic levels of activity, according to nearly a third of brokers (30%) surveyed in our latest SME Expert Index.

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Nearly another third (31%) believe the market will return within 6 months, based on the number of loan requests they had each month before the pandemic. Only 10% of brokers expect the market to take over 12 months to bounce back.

The iwoca SME Expert Index Q1 2022 is based on insight from UK brokers who collectively submitted over 3300 applications for unsecured finance on behalf of their SME clients in March.

Small business cash flow concerns trigger rising demand for finance

Over a third of brokers (34%) reported an increase in loan applications submitted in the last month compared to the previous month. Managing day-to-day cash flow became increasingly important to SMEs in Q1 2022, with nearly one in three brokers (31%) identifying it as the most common motivator for applying for finance. This is the first time that ‘managing cash flow’ has risen month on month, a significant shift in the downward trend it’s followed since the index began in Q1 2021, and a seven percentage point increase on the Q4 2021 SME Expert Index when 24% listed cash flow as the top motivator. This suggests the spike in lending activity could be attributed to small businesses’ escalating need for finance as they navigate the increasing cost of doing business, including rising energy prices and inflation.

The survey also signalled small businesses were looking to access smaller bridging loans – perhaps to cope with these rising costs – with the most commonly requested loan size for SMEs in Q1 2022 being under £25,000. In Q4 2021, by contrast, the most commonly requested loan size lay between £50,000 and £200,000.

Despite the rise in cash flow concerns, growing the business encouragingly remains the most common reason for SME owners to apply for finance, reported by 43% of brokers (same as Q4 2021).

Market prepared for winding down of government loan-schemes

Further signs of more familiar levels of activity in the lending market were reflected in brokers’ views on the winding down of the government schemes introduced to help SMEs through the pandemic. With the Recovery Loan Scheme coming to a close in June, only 18% of brokers said they're dissatisfied with the scheme’s end, compared to 39% who are satisfied with its imminent closure. This indicates a readiness in the market to return to pre-pandemic business as usual.

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Colin Goldstein, Commercial Growth Director of iwoca, said: “While it’s reassuring to see the lending market returning to pre-pandemic levels of activity, the inflation crisis is taking its toll on small businesses who are feeling the pinch. Rising fuel and energy costs are the main cost pressures hampering SMEs ability to combat what is expected to be a weaker than expected year of economic growth. As small business owners prepare themselves for cash flow issues in the coming months, it’s vital that lenders offer flexible finance to help them through this.”

Broker Rich Olsen, CEO of Pegasus Intelligent Corporate Finance, said: “We’re seeing a surge in demand for finance, driven by SMEs in all sectors, who are experiencing increased sales as well as rising costs. And we expect this demand to only increase, as businesses pay back their government loans. Whilst growth is expressed as the primary loan purpose as businesses bounce back from the pandemic, we're also seeing cash flow needs due to rising costs associated with raw materials, staff, energy and other inputs.”

Broker David Farmer from Lime Consultancy added: “We’re already seeing demand above pre-pandemic levels. Based on what small businesses are telling us, this is because they're gaining confidence in their understanding of the ‘new normal’  and now want to grow. They’re happier to carry debt and have cash, giving them more scope to move quickly and not be in the same position they were at the outset of the pandemic. Whether this rising demand for finance continues remains uncertain as we’re currently riding a wave of pent up demand with businesses who’ve consolidated over the past two years and are now actively looking to recover that ground. Much will depend on the impact of inflation, consumer confidence and whether base rates stymie spending.”

SME Expert Index

We publish the iwoca SME Expert Index every quarter. (It launched in Q1 2021). The data is obtained from a survey on brokers, and it reveals small businesses' borrowing habits, the trends seen in the types and value of finance being accessed, and how these patterns change as the country emerges from the pandemic.