iwoca: Back on track

Back on track

Borrowing to grow, not just survive

Colin Goldstein Commercial Growth Director iwoca

The world is settling into a new rhythm; the furlough scheme has ended, the Recovery Loan Scheme has been extended, and all businesses across the globe are determined to re-establish themselves as they emerge from the turbulence. And finally – as our Q3 SME Expert Index findings suggest – growth is on the cards.

The Q3 SME Expert Index is based on insight from UK brokers who collectively submitted over 1,000 applications for unsecured finance on behalf of their SME clients over a four-week period in August. It’s the third edition of the index and is designed to explore the small business borrowing landscape, and how this changes over time.

Borrowing for growth

The Q3 results suggest a promising trend with small business owners becoming more optimistic about economic conditions for growth. Over a third (35%) of brokers told us that ‘growing the business’ was the top reason cited by SMEs accessing finance – a 12 percentage point increase from the previous quarter, which puts growth into top place for Q3’s most common loan purpose.

This meant ‘managing day-to-day cashflow’ – having been the top motivator for SMEs applying for finance in both Q1 and Q2 – was overtaken for the first time this year, dropping by six percentage points. There was also a decline in the number of SMEs citing ‘recovery from lockdown or closure’ or to ‘bridge occasional cashflow gaps’ as a reason for needing finance.

Growing demand

The findings indicate a rise in requests for unsecured finance: a third (33%) of brokers told us they’d submitted more lending applications for unsecured finance compared to the four weeks prior. When combined with the loan purpose trend I have mentioned already, it’s clear that more and more businesses are looking to finance growth.

What’s more – with increased demand for unsecured finance comes increased demand for government-backed loans. Since our Q2 edition, many more banks and fintechs have received accreditation for the Recovery Loan Scheme (RLS) – including alternative lenders like iwoca. And our recent results reflect this: in Q2 only 20% of brokers opted to apply to accredited RLS lenders on behalf of their clients, with the majority choosing instead to wait for more lenders to be accredited or apply for non-governmentbacked products. In Q3, 75% of brokers chose to apply to RLS accredited lenders.

Appetite for RLS is growing; nearly 40% of brokers saw client demand for the scheme increase in Q3 compared to Q2. And one in seven brokers (14%) saw demand increase significantly – submitting 50% or more applications compared to the previous four weeks. As this data was captured prior to the scheme’s extension, it acts as a good indicator that the subsequent extension is welcomed by small businesses, brokers, and lenders alike.

We’ve spoken to brokers across the country about the Q3 SME Expert Index results, and the shift they show in SME borrowing behaviour. One of our broker partners – Sam Jones from NGI Finance – sums up the story behind the data nicely: “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 cashflow.”

It’s great to hear from brokers that the small businesses they work with are beginning to feel more confident about their future, and – as Sam suggests – access to external finance will be key to support this.