Small businesses invest in growth as demand for larger loans rises

The research is based on insight from UK brokers who collectively submitted over 3,500 applications for unsecured finance on behalf of their SME clients over a four-week period in December.

The index reveals that close to half (43%) of brokers saw financing for growth as the most common purpose for a loan among SMEs. This is the second consecutive quarter that SMEs have cited growth as their primary focus, and it’s an upwards trend from 35% in Q3.

As economic fears around the spread of the Omicron variant begin to dissipate, fewer than one in ten (9%) 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 a change in confidence in the economy over the past year. In the first quarter of 2021, only 25% of brokers cited growth as the most common reason for finance, compared to 43% in Q4. Similarly, whilst 41% pointed to managing cash flow as a primary reason in Q1, this has fallen to 24% as Covid restrictions ease and businesses look forward to life post-pandemic.

The confidence of small businesses in the economic recovery is reflected in the demand for larger loans. Over a quarter (26%) of brokers say that loans valued between £100,001 and £200,000 are the most commonly requested among their SME clients, increasing by 17 percentage points since Q3, when fewer than one in ten (9%) loan requests were of this size.

In contrast, demand for small loans, less than £25,000 – which were the most commonly requested in Q3 – has since fallen by 15 percentage points.

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 seen a significant spike. With RLS now set to wind down in June this year, a quarter of brokers (25%) saw demand fall over the last three months, balanced by 32% reporting an increase.

Colin Goldstein, commercial growth director at 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.”