iwoca SME Expert Index: Recession risk sparks concern in SMEs as demand for finance rises

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More than three-quarters (77%) of brokers say their small business clients are concerned about the possibility of a recession
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In light of these recession anxieties, demand for loans – and larger ones – has risen sharply as small businesses look to shield growing economic uncertainty
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SMEs’ reasons for applying for finance also suggest increasing economic concern, with a rise in the number of  brokers reporting ‘managing day-to-day cash flow’ as the most common loan purpose (37%)
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However, growth remains the top driver for financing (40%)  – an encouraging sign that small businesses will remain resilient to what could be ahead
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(August 1st, London) Small business owners are concerned about the possibility of a recession, according to <a href="https://www.iwoca.co.uk/" target="_blank" rel="noopener" data-saferedirecturl="https://www.google.com/url?q=https://www.iwoca.co.uk/&amp;source=gmail&amp;ust=1659542096175000&amp;usg=AOvVaw3jhdQHGC7ryIB1CCMLEdcC">iwoca’s</a> latest quarterly SME Expert Index.
With both the cost of living and of doing business climbing, over three quarters of brokers surveyed (77%) say their small business clients are worried about the possibility of a recession. By contrast, fewer than 7% of brokers reported their SME clients as ‘unconcerned’.
<a href="https://www.iwoca.co.uk/news/iwoca-sme-expert-index-q2-22/?utm_source=news&amp;utm_medium=article&amp;utm_campaign=sme_expert_index_Q2_22&amp;utm_content=online&amp;utm_term=link" target="_blank" rel="noopener" data-saferedirecturl="https://www.google.com/url?q=https://www.iwoca.co.uk/news/iwoca-sme-expert-index-q2-22/?utm_source%3Dnews%26utm_medium%3Darticle%26utm_campaign%3Dsme_expert_index_Q2_22%26utm_content%3Donline%26utm_term%3Dlink&amp;source=gmail&amp;ust=1659542096175000&amp;usg=AOvVaw1SC-EM4fvi_Ut0IBl6CtLQ">iwoca’s Q2 2022 SME Expert Index</a> 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%) 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% citing the same in Q4 2021, and 34% reporting increased loan demand in Q1 2022.
In addition, the latest SME Expert Index saw 0% 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%) 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 4% 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 <a href="https://www.iwoca.co.uk/news/business-loans-500k/" target="_blank" rel="noopener" data-saferedirecturl="https://www.google.com/url?q=https://www.iwoca.co.uk/news/business-loans-500k/&amp;source=gmail&amp;ust=1659542096175000&amp;usg=AOvVaw2GVMG1ynhUdZhcAqlSVhsD">business loans up to £500,000</a>, 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%) reported managing day-to-day cash flow as the most common loan purpose for small businesses. This represents an increase of 6 percentage points since last quarter.
Nonetheless, as in Q1 2022, brokers report ‘growing the business’ as the most common reason for small business owners to apply for finance, although it’s down by 3 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: 

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“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.”
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Leanne Barry, Broker at LB Finance Solutions Ltd, added:

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“We have definitely been receiving more applications from smaller businesses over the last 2 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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SME Expert Index
This <a href="https://www.iwoca.co.uk/news/iwoca-sme-expert-index-q2-22/?utm_source=news&amp;utm_medium=article&amp;utm_campaign=sme_expert_index_Q2_22&amp;utm_content=online&amp;utm_term=link" target="_blank" rel="noopener" data-saferedirecturl="https://www.google.com/url?q=https://www.iwoca.co.uk/news/iwoca-sme-expert-index-q2-22/?utm_source%3Dnews%26utm_medium%3Darticle%26utm_campaign%3Dsme_expert_index_Q2_22%26utm_content%3Donline%26utm_term%3Dlink&amp;source=gmail&amp;ust=1659542096175000&amp;usg=AOvVaw1SC-EM4fvi_Ut0IBl6CtLQ">SME Expert Index</a> from iwoca provides a snapshot on what’s driving small business owners to borrow, the trends seen in the types and value of finance being accessed, and how these patterns change over time. iwoca publishes this index every quarter to capture the experience of brokers working with small businesses.
iwoca is reaching 2.3 million businesses across the UK and Germany through its embedded lending technology, which allows businesses to access loans through a range of platforms such as accountancy software apps and digital neo-banks. In June 2020 the lender launched iwocaPay – an online buy now pay later invoice checkout to help small businesses get paid. Most recently iwoca launched a Revenue Based Loan, where businesses can spend on growth and repay at their own pace, based on their revenue. The company also offers free mental health support for all small businesses in the UK, in partnership with online therapy platform Spill.
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iwoca SME Expert Index: Recession risk sparks concern in SMEs as demand for finance rises

By <a style="color: #4bbb87;" href="https://www.iwoca.co.uk/">iwoca</a>

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Sole traders may have been disproportionately impacted by COVID restrictions: 58% are either not trading or trading less than pre-COVID.
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Almost half of sole traders worry they won’t be able to afford paying themselves a salary in the next 6 months.
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Nearly 1 in 4 sole traders will take zero days off in the next year.
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Sole traders – who account for 59% of the UK business population1 – have been worst affected out of all businesses by COVID restrictions, a survey by small business lender <a href="https://www.iwoca.co.uk/" target="_blank" rel="noopener noreferrer" data-saferedirecturl="https://www.google.com/url?q=https://www.iwoca.co.uk/&amp;source=gmail&amp;ust=1628863584278000&amp;usg=AFQjCNGRR02ZljhhyufiwVWXs6lNf8sKWw">iwoca</a> has found.  The majority (58%) of sole traders (defined as those who are the exclusive owners of their businesses) are trading less than pre-COVID, compared to 43% of (limited) companies. What’s more, sole traders are twice as likely not to be trading at all, with 14% in this position compared to 7% of limited companies.
COVID- secure workplace measures disproportionately impacted sole traders
As the UK has reopened, small businesses report that having to be ‘COVID-secure’ took its toll; but it seems sole traders suffered the biggest hit. Almost a third (32%) said they were making fewer sales due to COVID-secure workplace measures (compared to 24% of limited companies), and – where 29% of limited companies had fewer customers – nearly 4 in 10 sole traders suffered the same (39%).
The research also revealed that nearly half of business owners with sole trader status (46%) were concerned they’d struggle to afford their own wages in the next 6 months (compared to 37% of those without).

Nearly 1 in 4 sole traders will take zero days off in the next year
As SMEs continue to wrestle against the pandemic, time off seems to have become a luxury they can’t afford. And again: it’s sole traders who’re worst affected, with 24% not even planning to take one day off in the next 12 months (compared to 13% of limited companies). The majority – 59% – plan to take less than ten days off in the next year (compared to 50% of limited companies).
Seema Desai, Chief Operating Officer of iwoca added: “The pandemic has hit sole traders particularly hard. We need our sole traders back on their feet - hopefully the lifting of restrictions will help them to recover, which will be great for them and also for the economy more broadly.”

iwoca distributed nearly £400 million to small businesses through the Government's Coronavirus Business Interruption Loan Scheme (CBILS) and in June 2020 launched <a style="color: #4bbb87;" href="https://www.iwoca.co.uk/iwocapay-sellers/" target="_blank" rel="noopener noreferrer" data-saferedirecturl="https://www.google.com/url?q=https://www.iwoca.co.uk/iwocapay-sellers/&amp;source=gmail&amp;ust=1628863584278000&amp;usg=AFQjCNFFuGwnC6p6aSFI4ge75Ei5u9_DuA">iwocaPay</a> – an online buy now pay later invoice checkout to help small businesses get paid. The lender is reaching 1.8 million businesses across the UK and Germany through its embedded lending technology, which allows businesses to access loans through a range of platforms such as accountancy software and digital neo-banks. iwoca has also recently partnered 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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Nearly 6 in 10 sole traders trading less – or not at all – as restrictions ease

By <a style="color: #4bbb87;" href="https://www.iwoca.co.uk/">iwoca</a>

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One in six (16%) small business owners say they will not take any holiday this year, despite international borders reopening
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Over half (58%) of owners are intending on taking a staycation this summer
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50% are put off from taking holiday abroad due the cost of COVID-19 tests
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Two thirds (66%) say they won’t take a holiday abroad due to quarantine rules
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(Thursday 29 July) New research published today by small business lender <a style="color: #4bbb87;" href="https://www.iwoca.co.uk/" target="_blank" rel="noopener noreferrer" data-saferedirecturl="https://www.google.com/url?q=https://www.iwoca.co.uk/&amp;source=gmail&amp;ust=1627633362403000&amp;usg=AFQjCNFPO-Z3-InMQbRcjabM9leMa-AZqw">iwoca</a> reveals that COVID rules on travelling may be putting off small business owners from taking any holiday this year.
Following an extremely tough year for small business owners, one in six (16%) SME owners revealed that they plan to take no holiday days this year. This trend is even more prevalent for sole traders, a quarter (24%) of whom plan to take zero holiday days in the next 12 months. In addition to having no leave planned, the majority (68%) of business owners reported that they hadn’t taken any time off since the beginning of the pandemic.
For small business owners who plan on taking a holiday this year, over half (58%) said they will take a staycation this summer, compared with just 21% who will go overseas. Some of the findings suggested that COVID-rules on travelling are putting off small business owners from going abroad. Half (50%) of small business owners said they would be less likely to go overseas due to the costs associated with COVID-19 tests.  A further two thirds (66%) said they would be less likely to go abroad for a holiday because they may be required to quarantine on return.
As the UK reopens, taking more holiday is becoming more frequent
However, the research does suggest that, as the UK begins to reopen, small business owners are looking to take more holiday days than earlier in the pandemic. Last year, almost three quarters (73%) of small business owners said they would be taking five or fewer days of leave in the next 12 months,2 but this year, just a third (34%) reported they would take so few days. Nearly a third (30%) will take 15 or more days off in the next 12 months, up from 11% in 2020.
Small business owners overwhelmingly agree that taking holiday is important for their mental health. Almost three quarters (73%) of small business owners agreed that taking a holiday was important - with over half (57%) strongly agreeing. However, this was slightly down from last year, where 88% of respondents agreed it was vital for protecting their mental health. The slight dip in sentiment could be attributed to an uptick in optimism for small business owners as the economy reopens and the stresses of the pandemic begin to ease.
Seema Desai, Chief Operating Officer of iwoca added: 
“After the 18 months we’ve had, we all need some time off, employees and business owners alike.
“Many small businesses across the country have gone through a huge amount of stress and hardship this year. Finding some time to take a break and recharge can help small business owners come back revitalised and ready to take advantage of the opportunities arising from the economy opening up."
Case studies
Simon Bullmore, Co-Founder and Head of Consulting of Mission Drive: 
“I wasn’t able to take any time off during the pandemic. This was partly because I was prioritising my staff and their leave over my own, but also because, as a digital business, we got really busy during the pandemic helping clients to move to working virtually.
“We have all felt burnout from having to work during the pandemic. We were working longer hours, and so taking time off was just not viable.
“Moving forwards, as business owners, we need to switch off, for our own benefit and for our clients. It’s important to take time off, even while working virtually.”
Shane Wilson, Owner of Wilson Cycle Servicing and Repair:
“I started my business to help children from low-income backgrounds to go cycling while on holiday. A lot of us take it for granted, but having access to a bike can be out of reach for some children, and I think it's important that everyone gets the chance to exercise and have fun.
“As a business owner I do think that it's important to take time off, especially after the last year. I haven’t taken any holiday since the beginning of the pandemic because I was focussed on keeping my family safe. However, I have booked a staycation for next year, by which time I'm aiming to set up a shop so I can reach more families in need."
iwoca distributed nearly £400 million to small businesses through the Government's Coronavirus Business Interruption Loan Scheme (CBILS) and in June 2020 launched <a href="https://www.iwoca.co.uk/iwocapay-sellers/" target="_blank" rel="noopener noreferrer" data-saferedirecturl="https://www.google.com/url?q=https://www.iwoca.co.uk/iwocapay-sellers/&amp;source=gmail&amp;ust=1627633362403000&amp;usg=AFQjCNFybmMOykAaipvwSSna78luCaCOYw">iwocaPay</a> – an online buy now pay later invoice checkout to help small businesses get paid. The lender is reaching 1.8 million businesses across the UK and Germany through its embedded lending technology, which allows businesses to access loans through a range of platforms such as accountancy software apps and digital neo-banks. iwoca has also partnered 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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One in six small business owners will not take any holiday this year despite travel restrictions easing

iwoca provides an alternative to traditional business finance, based on a data-driven risk engine.
iwoca is an award-winning FinTech company providing short-term finance to small businesses. iwoca has already lent millions of pounds to SMEs in the UK. The capital injections have enabled thousands of entrepreneurs to think big and invest in technology, inventory and employees.

iwoca

iwoca provides an alternative to traditional business finance, based on a data-driven risk engine.

iwoca is an award-winning FinTech company providing short-term finance to small businesses. iwoca has already lent millions of pounds to SMEs in the UK. The capital injections have enabled thousands of entrepreneurs to think big and invest in technology, inventory and employees.

Co-Founder and CEO, iwoca

Christoph Rieche is the co-founder and CEO of iwoca and a leading figure within the fintech sector. Christoph is passionate about helping small businesses thrive and grow. He has played a formative role in the evolution of technology-driven financing and established iwoca as a leading fintech lender in Europe. Prior to founding iwoca in 2012, Christoph studied at HEC Lausanne and the London School of Economics before he became a VP at Goldman Sachs (Fixed Income, Currencies and Commodities).

Christoph Reiche

Co-Founder & CEO, iwoca

Christoph Rieche is the co-founder and CEO of iwoca and a leading figure within the fintech sector. Christoph is passionate about helping small businesses thrive and grow. He has played a formative role in the evolution of technology-driven financing and established iwoca as a leading fintech lender in Europe. Prior to founding iwoca in 2012, Christoph studied at HEC Lausanne and the London School of Economics before he became a VP at Goldman Sachs (Fixed Income, Currencies and Commodities).

Christoph Rieche

Head of Strategy, iwoca

Ross is head of strategy at iwoca, where he helps set the medium and long-term direction of the business along with spearheading special projects. He has deep experience from over 20 years in financial services, covering the full spectrum of retail and commercial banking, including in general management and corporate development roles. 
He transformed the £50m Post Office retail banking business, including launching a new credit card business in partnership with Capital One. He holds an MBA from London Business School and a BA in Economics from the University of Virginia. 
In his spare time he spends time with his two children and plays tennis and squash (frequently with the kids also!) and serves as president of the Sylvan Debating Club.

Ross Hunter

COO, iwoca

Seema Desai was born in Portsmouth and grew up in Surrey. She studied Natural Sciences at Cambridge before starting her career in financial services in Accenture’s strategy division. She worked with HBOS, then helped GSMA develop mobile financial platforms for emerging markets before working for peer-to-peer investments at Zopa. She is now the Chief Operating Officer at iwoca. A keen mountain climber, Seema lives in East London.