More loans, larger businesses and a regional shift – these are some of the trends and insights that fintech business lender MarketFinance observed during 2020.
MarketFinance lent a total of £342.4m across all solutions, over the first 11 months of 2020. Representing a 3.4% increase in total lending over the same period in 2019 (£331.1m)
The profile of companies using invoice financing changed significantly during COVID-19. Those businesses using invoice financing were both larger than usual (an average turnover of £2.1m, compared to £1.3m in 2019, a 60% increase) and received 83% more financing on average than they did in 2019
Businesses in London, Hertfordshire, the East of England and the South West experienced the greatest drops in invoice financing year on year, with a 45% decrease in London alone. These geographies are hubs for the Support Services and Information & Communication industries, indicative of how hard these sectors have been hit by COVID-19
Demand for business loans soared with a 13-fold increase in loans between Q2 and Q3 2020. The majority of loans (60%) were made to businesses in Support Services, Wholesale & Retail Trade, Manufacturing and Construction.
Q1 and Q2 2020
The UK’s economic prospects showed signs of turning early in 2020, as Brexit-related uncertainty began to fade. Despite the promising start to the year at MarketFinance, with larger businesses borrowing, this upward turn halted suddenly when the COVID-19 pandemic arrived. The country and economy, effectively, went into lock down at the end of March. However, during this time when UK GDP crashed by 2.2% across Q1, it was also the first sign of the coming shift for many companies towards new alternative financial mechanisms.
As of Q2, 46% of businesses reported that income was down by 50% and so the number of companies using invoice finance dropped by 35%. However, while smaller companies with a narrow spectrum of business activity looked to other financial solutions, larger businesses with diversified workflows (and therefore revenue streams) were able to continue using invoice-backed facilities to boost their cash flow. The average revenue of these companies was over double what it had been during the same period the previous year, growing to £2.1m, an increase of 127%. In fact, while approved company applications for invoice finance went down, invoice values actually went up. The average size of an invoice being financed increased significantly in Q2 in comparison to the previous four quarters.
MarketFinance became an accredited CBILS lender and so the quantity and concentration of loans advanced increased by a significant 13 times compared with Q2. Interestingly, over a third (36%) of all loans to manufacturing companies went to those based in the Midlands.
Anil Stocker, CEO of MarketFinance commented: “Small businesses will play the pivotal role in the UK’s economic recovery as we emerge from the pandemic, and we are confident that the bounce back will, with the right support, be swift. These linchpins of our economic fabric will require innovative, sustainable and tailored financial solutions that are fit for purpose in a post-pandemic world. It is up to all of us – accountants, brokers, business advisors, banks and lenders – to continue to step up to the plate and help these businesses survive and thrive.”
Invoice finance was showing gradual growth as of mid-November 2020, suggesting some normalisation of business activity, despite the second UK lockdown. Although the number of companies using invoice finance per quarter dropped by 55% from Q1 to Q2, the figures for Q4 appear to be trending up on both Q2 and Q3. There’s some way to go before we see levels return to those of 2019, but there’s every sign of businesses recovering well as we move into 2021.
COVID-19 continues to affect global supply chains. Manufacturing, Wholesale & Retail Trade, and Construction companies have sought further funding to see them through the pandemic and beyond. Manufacturing companies received 19% of all MarketFinance loans across industries. 32% went to companies in the Midlands, 21% to companies in London and another 21% to companies in the South West, also continuing the trend from Q3. Facing significant challenges to both importing and exporting, Wholesale & Retail Trade companies received 15% of loans across industries, with 40% of these to companies in London.
Anil Stocker added: “Of course, the challenges and uncertainties that 2020 has presented won’t end come January. Businesses will have to navigate the aftermath of COVID-19 for months to come. However, although a lot of businesses have felt a negative impact over the past year, many have executed successful pivots and taken advantage of new opportunities that presented themselves. We’re hopeful that this strong comeback signals we’re already past the worst of the situation. We’ve also been incredibly proud of business support networks up and down the country. They’ve rallied together to support businesses throughout the year and we expect to see this support continue. We’re excited to carry on providing SMEs with the working capital they need to grow, innovate and build towards a successful future.”