UK SMEs Have Renewed Appetite For Unsecured Credit
Another side-effect of Covid-19? There’s no point in speculating as to the reasons, the facts themselves are interesting enough. UK small- and medium-sized enterprises (SMEs) are hungrier than ever for unsecured credit. Money&Co. has strict criteria for lending, and requires security before agreeing to facilitate a loan.
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.
Historical Performance And IFISA Process Guide
- Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee).
That figure is the result of over £24 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
- Money&Co. has been lending for over 5 years and has only had two bad debts so far, representing a bad debt rate of 0.03 per cent per annum.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here’s our guide to the process:
- Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
- Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
- Step 3: Buy loans in the loan market. Once you’ve put cash in your account it will sit there – and it won’t earn interest until you’ve bought a piece of a loan. It’s this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans – all loans on the Money&Co. site can be held in an IFISA – and your money will start earning tax-free interest.
The ISA allowance for 2020/21 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.