In the aftermath of the global pandemic, the UK’s small business owners are feeling increasingly confident about the future, and instead of seeking funds to survive the lockdowns and restrictions that would have at one point served a death blow to SMEs, they’re now seeking funds to grow their ambitions for 2022.
These are the primary findings of the Q4 SME Expert Index, which is published fresh every quarter by iwoca. The index is based on insight from UK brokers who collectively submitted over 3500 applications for unsecured finance on behalf of their SME clients over a four-week period in December.
The data reveals how 43 per cent of brokers saw ‘financing for growth’ as the most common purpose for a loan among SMEs, being the second consecutive quarter that SMEs have cited growth as their primary focus; increasing 35 per cent in Q3.
As economic fears around the spread of the Omicron variant begin to dissipate, fewer than one in ten (nine per cent) brokers reported ‘recovery from lockdown or closure’ as the most common loan purpose for SMEs. This represents a decrease of 11 percentage points since the last quarter, hinting that small business preoccupation with shorter-term Covid concerns has evolved into ambitions for expansion.
These shifts in priorities reflect an optimistic change in economic confidence over the past year. Only 25 per cent of brokers cited growth as the most common reason for finance in Q1 2021, compared to 43 per cent in Q4. Similarly, whilst 41 per cent pointed to managing cash flow as a primary reason in Q1, this has fallen to 24 per cent as Covid restrictions ease and businesses look forward to life post-pandemic.
Larger ambitions, larger loans
The demand for larger loans reflects the growing confidence of SMEs. 26 per cent of brokers say that loans valued between £100,001 and £200,000 are the most commonly requested among their SME clients, increasing by 17 per cent since Q3, when fewer than one in ten loan requests were of this size.
In contrast to this, demand for small loans, being less than £25,000 – which were the most commonly requested in Q3 – has since fallen by 15 per cent. SMEs want to do more and want to be able to drive their ambitions into fruition, and are increasingly prepared to secure larger loans to allow them to achieve this.
Recovery Loan Scheme extension keeps demand at bay
Despite the extension of the Recovery Loan Scheme in the Chancellor’s Autumn Budget in November 2021, demand for the government-backed programme hasn’t experienced the significant spike some were expecting to see. With RLS now reportedly set to wind down in June this year, a quarter of brokers saw demand fall over the last three months, balanced by 32 per cent reporting an increase.
Colin Goldstein, Commercial Growth Director of iwoca, said: “This quarter’s SME Expert Index indicates growing confidence among small businesses, who have endured the blow of the Omicron shock. After two years of uncertainty, SMEs are now able to set their sights on growth – an encouraging sign that the mainstay of the UK economy is on its feet once again. We need to continue to support small businesses in accessing finance, to power this growth and contribute to a meaningful economic recovery.”
Broker Sharon Cook, Director of Choice Business Loans, added: “We had two camps of clients throughout 2021. The first camp: those who needed support recovering from the pandemic, possibly where the assistance on offer at the time was not enough for them. The pandemic has not just caused some businesses to have a huge hole in trading, but it has also delivered other challenges such as supply chain issues and price increases. These things put pressure on SMEs and having access to cash flow solutions to help ease the burden was the number one priority for many business owners.
“The second camp: business owners who started to experience a growth phase of the business and sought finance solutions to help them get to the next level.
“Towards the end of 2021, the second camp – those in the growth phase – expanded. Certainly, some areas of the SME marketplace have seen a boom, especially where businesses have been forced to pivot and explore new sales avenues. Online B2C sales are a clear winner for expansion and we’re seeing businesses need more cash to turn the stock more quickly. Even hospitality is bouncing back; I have two clients looking to get second premises.
“I think that shows the real defiant and fighting spirit that is so prevalent in SME business owners. Having access to good quality finance is, and always has been, imperative to SMEs to help them survive and to thrive.”
