European Fintech iwoca Reveals that 1 in 3 Brokers Now See Growing Demand for Unsecured Finance

The iwoca SME Expert Index reveals that 1 in 3 brokers “see rising demand for unsecured finance.”

As noted in an update shared with CI, more than a third (38%) of brokers submitted “more lending applications for unsecured finance in May compared to the previous four weeks.” Cash flow remains the primary reason for SMEs applying for finance, the update from iwoca reveals.

The company further noted that one in four brokers consider the “approved amount” as the “most important factor when comparing two loan offers.”

As stated in the update:

“Demand for unsecured finance from SMEs is on the rise, according to iwoca’s quarterly SME Expert Index of UK brokers.”

The index, which covers a 4-week time-frame in May 2021, reveals that more than a third (38%) of brokers had submitted more lending applications for unsecured finance when compared to the 4 weeks prior to that, indicating that SMEs are increasingly using credit “to support their growth and recovery.”

Nearly one in five brokers (19%) saw demand increase significantly – “submitting 50% or more applications compared to the previous four weeks,” the update from iwoca noted while adding that this has “risen from 14% of brokers citing the same in the Q1 index.”

iwoca’s Q2 SME Expert Index is “based on insight from UK brokers who collectively submitted over 1250 applications for unsecured finance on behalf of their SME clients in May,” the announcement explained.

As stated in the release:

“Over half of respondents (55%) reported that the most commonly requested unsecured loan amount they’d applied for on behalf of their clients was under £50,000. Nearly one in five (17%) were most likely to request loans under £25,000 – this is below the threshold of the government-backed Recovery Loan Scheme.”

The update also mentioned that businesses continue “to look to unsecured finance to manage cash flow.” Cash flow remains the main driver for SMEs  applying for finance: 32% of brokers said the “most requested reason” for loan applications in May 2021 was managing “day to day cash flows.”

As noted in the announcement, growth comes next, with 23% of brokers “stating the top reason their SME clients requested finance was to ‘grow their business.'” The findings also reveals that – as social distancing restrictions ease – one in five (21%) SMEs are “seeking finance to recover from lockdown or closure.”

As noted in the update from iwoca:

“For SME clients who requested finance through the government-backed Recovery Loan Scheme in May, a third of brokers said they waited – or are still waiting – for non-bank lenders to be accredited to the scheme.”

The announcement also mentioned that the “approved amount” continues “to be the most important factor for brokers when presenting two competing loan offers to clients, with 23% of brokers highlighting this as having the most impact (25% in Q1 SME Expert Index).”

The update further noted that the “total cost of borrowing” (19%) and “monthly interest rate” (19%) come next. But the number of brokers “concerned with the level of APR has more than halved since January from 13% to 6%.”

The iwoca report further revealed that only a little over two-thirds (68%) of brokers said the “speed of receiving a decision” and that the “amount requested meets lender’s offering” were the factors which “most often played a part in deciding which lender to send a submission to.” This was “a slight variation to the Q1 index, where speed was the key factor and only 56% were concerned with the lender matching the amount requested,” the update noted.

Colin Goldstein, Commercial Growth Director of iwoca, stated:

”The SME Expert Index provides vital insights from the broker community into what SMEs need, and how lenders can best support them as they look beyond the Covid-19 crisis. Access to finance is crucial for small businesses who are looking to grow and recover from the pandemic. As social distancing restrictions ease and the economy opens up, it’s encouraging that SMEs are feeling increasingly confident to use credit as an important tool to help them get back on track.”

Calvin Dexter, Director at Calvin Dexter Financial Solutions Limited remarked:

“It’s certainly not business as usual for the unsecured lending market, but I’m seeing signs of recovery and I expect things to pick up significantly as more alternative lenders become accredited for the Recovery Loan Scheme. Over the coming weeks I believe we’ll see a big shift to unsecured lenders as small businesses who ordinarily turn to the banks for support, will require alternative options when they realise the support is not forthcoming. In the meantime, business owners will have to continue to carefully manage cash flow and be alert to seek early support should additional cash be required for an opportunity or to put out a fire. This is where the unsecured loan market can assist promptly and effectively.”

iwoca reports that it distributed almost £400 million to small businesses through the UK Government’s Coronavirus Business Interruption Loan Scheme (CBILS) and in June 2020 launched iwocaPay – which is an online Buy Now Pay Later or BNPL invoice checkout to help small businesses get paid.

The lender is approaching 1.8 million businesses across the United Kingdom and Germany via its embedded lending tech, which allows businesses to access loans via a range of platforms like  accountancy software applications and digital neo-banks.

iwoca has also teamed up with Mental Health UK on research “to identify the needs of small business owners, and will soon launch a tailored mental health support package.”

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