iwoca SME Expert Index: High street banks cut lending to SMEs as demand for finance grows

• The SME finance gap is growing; 82% of brokers report a reduced appetite from the major banks to fund SMEs, whilst a similar proportion (79%) predict that demand for small business finance will rise in the next year.
• More than eight in ten brokers (84%) report their SME clients are concerned about their businesses surviving increased energy prices; over 50% think a potential recession will be worse for small businesses than the pandemic was.
• The findings come after iwoca extends its funding line with long-term partner Pollen Street Capital, from £125m to £170m, to match increasing SME demand for finance.

Demand for finance from the UK’s 5.5m small and medium-sized businesses is on the rise at the same time as banks are reducing their lending appetite, according to iwoca’s latest SME Expert Index. 

More than eight in ten SME finance brokers (82%) agree that major banks have reduced their appetite to fund SMEs, while nearly half of brokers (49%) report that more of their clients’ applications for finance were rejected compared to the previous month.

The new data of UK brokers who submitted over 2,000 SME finance applications in December also finds that funding experts think current macroeconomic pressures will have a worse impact on SMEs than the pandemic did.

SME demand for finance soars as banks retrench

The findings suggest demand for lending is set to increase dramatically over the next six months; four in every five brokers (79%) believe that demand for SME finance will rise, with just 6% predicting demand will fall. 

Four in ten brokers (39%) say they’ve already seen a rise in applications for finance over the last month, with just one in seven brokers (14%) seeing applications fall.

Current macroeconomic pressures set to have worse impact on SMEs than the pandemic did, brokers say

One of the key drivers of rising demand for SME finance is the soaring cost of doing business. More than eight in ten brokers (84%) report their SME clients are concerned about their businesses surviving increased energy prices. 

Over half (51%) also expect the potential recession’s impact on SMEs will be worse than that of the pandemic, twice the rate of those who think it will be better. 

iwoca increases funding line to match demand

iwoca recently extended its funding line from £125m to £170m with long-term partner Pollen Street Capital. The company will use the additional £45m to provide loans to meet the growing demand for SME financing, having seen a 50% increase in the number of businesses it funded across the UK and Germany in 2022.

Colin Goldstein, Commercial Growth Director at iwoca, said: “With brokers predicting that the impact of current macroeconomic pressures this year will be worse than the pandemic for small businesses, it’s clear that SMEs across the UK are in need of financial support. And – as our data shows – traditional banks just aren’t offering this.  

“Alternative lenders are once again proving just how crucial they are to protecting small businesses from this financial shock. Our funding extension with Pollen Street Capital has helped us match increased appetite for SME finance, and now our focus will be to secure further financing so we can continue to  service this rising demand.”

SME Expert Index

This SME Expert Index 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 as the country navigates economic shifts in the market. 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. As well as its original Flexi-Loan, the lender offers an omni-channel B2B payment solution (with built in B2B BNPL) – iwocaPay, and a Revenue Based Loan, where repayments are a percentage of a business’s monthly sales. The company offers free mental health support for all small businesses in the UK, in partnership with online therapy platform Spill.