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SMEs Increasingly Concerned About Possible Recession

Small business owners are concerned about the possibility of a recession, according to iwoca’s latest quarterly SME Expert Index.

With both the cost of living and of doing business climbing, over three quarters of brokers surveyed (77 per cent) say SMEs are worried about the possibility of a recession. By contrast, fewer than seven per cent of brokers reported their small business clients as ‘unconcerned’.

iwoca’s Q2 2022 SME Expert Index is based on insight from UK brokers who collectively submitted over 1350 applications for unsecured finance on behalf of their SME clients in June.

Demand for finance increases as small business owners contend with rising inflation

As small businesses face mounting economic uncertainty, their demand for finance has risen sharply. Almost half of brokers (46 per cent) submitted more loan applications for small business financing in the last month compared to the one previous – a continuation of an upwards trend since the end of last year, with 28 per cent citing the same in Q4 2021, and 34 per cent reporting increased loan demand in Q1 2022.

In addition, the latest SME Expert Index saw 0 per cent of brokers reporting significantly fewer applications.

The survey also reveals that small businesses are looking for larger loans in light of the turbulent economic forecast. Over one in eight brokers (13 per cent) identified £200,000+ loans as most sought after for small businesses, the highest proportion since the Index was first released. Looking back at this trend, demand for loans valued above £200,000 has steadily increased since iwoca’s first Index in Q1 2021 when only four per cent of brokers reported these larger loans as the most commonly requested.

To meet this growing appetite for high value loans in the small business sector, iwoca recently announced that it is more than doubling the maximum size of its core lending product, Flexi-Loan, allowing small business owners to access business loans up to £500,000, up from a previous lending cap of £200,000.

Managing cash flow a key priority amidst the economic storm

This heightened demand for financing, and larger amounts of it, suggests small businesses are gearing up for financial strain: in particular, cash flow issues. Over a third of brokers (37 per cent) reported managing day-to-day cash flow as the most common loan purpose for SMEs. This represents an increase of six percentage points since last quarter.

Nonetheless, as in Q1 2022, brokers report ‘growing the business’ as the most common reason for SMEs business owners to apply for finance, although it’s down by three percentage points since Q1. So, whilst managing day-to-day cash flow is becoming more important, small businesses are continuing to seek loans to finance broader growth ambitions.

Steven Scoufarides, head of broker channel at iwoca , said: “The current economic outlook for small businesses is precarious – we are seeing signs of an increasing number of SMEs searching for finance solutions to manage their cash flow and brace for the potential of a recession. But, as they’ve proven time and time again, small businesses are resilient and will shield themselves against this economic threat in every way they can; encouragingly, it looks like most are still seeking finance to grow their businesses, rather than to holster it up. At iwoca, we’re working hard to adapt to small businesses’ needs, which is why we’re now offering the higher-value loans up to £500,000.”

Leanne Barry, broker at LB Finance Solutions Ltd, added: “We have definitely been receiving more applications from smaller businesses over the last two months since the Recovery loan scheme came to an end. This is mainly from businesses that either did not manage to source any government backed funding, or indeed have already used any funding they received for cash flow and are now needing further funding to stay afloat.”


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