Cash flow becomes top priority for SMEs as economic storm brews

With inflation hovering at a 40-year high, managing day-to-day cash flow has become the primary reason for small business applications for finance, according to iwoca’s latest research.

The survey of brokers has revealed that managing cash flow is the most common loan purpose for over two in five small businesses (42%) over the last quarter, a 16 percentage point increase from the same period last year. This is the first time since Q2 2021 that cash flow concerns have overtaken ambitions to grow their business as the primary reason to access finance.

Echoing these cash flow concerns – even before Chancellor Jeremy Hunt’s decision to review the Energy Price Guarantee – the vast majority of brokers (83%) indicated that their SME clients are concerned about their businesses surviving the increased energy prices.

One in five brokers (19%) say it would take over 12 months for the lending market to return to the number of loan requests they received pre-pandemic, a significant increase since Q2 2022, when only 7% of brokers thought it would take over a year for markets to bounce back.

As inflation pinches, small businesses are being mindful of APR, which is currently the leading deciding factor for SME owners when choosing between loan offers, according to a quarter of brokers (24%). This is followed by one in five (21%) who say the approved amount of the loan is the most impactful factor.

Colin Goldstein, commercial growth director at iwoca, said: “The challenging economic environment has hit small businesses everywhere. They’re needing to manage cash flow in the face of rising business costs, as well as having to consider the cost of borrowing. At iwoca, our priority is to continue to support them over the coming months by providing access to finance as soon as they need it.”

Broker Jo Malyon, owner of Blue Badger Financial, added: “Cash flow is the main reason small businesses are applying for finance at the moment. This is because of the increases in supply prices, utility bills and inflation, as well as the difficulty they’re facing in passing on additional costs to customers. There’s a definite sense of uncertainty in what’s going to happen in the market, and this combined with the rising cost of borrowing is certainly causing SME appetite for finance to decrease. Small business owners are increasingly nervous about taking on any new liabilities."