Economic Impact Report 2021 – how business lending has changed since Covid-19

2020 was a year of challenges for businesses up and down the country, but it did change how businesses looked to access finance. As high street banks closed their doors during the lockdowns, there was a surge in demand for digital finance through online loan providers. Now, in 2022, it seems this shift is here to stay, with investment in new technology helping to remove the barriers for businesses looking for finance. 

Here, we take a look at how the pandemic influenced the landscape of digital finance, and how this could evolve in the future.

SME lending normalised in 2021

2020 saw a huge injection of new lending through the Government loan schemes such as the Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS). But in the second half of 2021 as those Government loan schemes ended, we saw overall lending decrease.

However, it’s clear that the pandemic has accelerated the trend towards digital finance. With many businesses needing to evolve their operations and making the switch to online, late-adopters were forced to use digital finance for the first time, as traditional banks closed during lockdowns. 

Online transactions accounted for more than 30% of retail sales in November 2021, compared with 22% in November 2019, and SMEs followed this trend, with 40% of them increasing their use of online banking services over the last year.

Once businesses go online, they don’t go back

According to OECD research, approximately two-thirds of businesses expect the digital changes they’ve made during the pandemic to be permanent, and this is supported by our own research as well. Over three-quarters of our first-time borrowers would use us first the next time they need finance, and over 60% of our 2021 borrowers used us to access finance online for the first time.

New technology is removing the barriers to finance

The long process of getting funding has always been one of the main reasons why businesses are reluctant to apply. But with digital finance, that barrier is being lifted. Borrowing online is simpler than ever before, and the use of new technology means the process can take a fraction of the time it used to.

Instant decision technology, introduced by Funding Circle in 2020, is providing a much more seamless borrowing experience, with an average application taking 10 minutes and a lending decision coming in as little as 1 hour. In fact, 70% of all Funding Circle’s UK applications are now receiving instant decisions – which aligns with the 66% of SMEs who said faster access to funding was one of the most important things for their business. 

Embedded finance could be the new way forward

The growth of online lending is likely to be accelerated even more by embedded finance – which allows online providers to offer direct access to each other’s products, to the benefit of the consumer. Like Funding Circle’s new embedded finance solution, for example, which embeds the platform into partners’ environments through a native application programming interface (API). 

Because of the ease of this process, the global market value of embedded finance is expected to grow from $43 billion in 2021 to $138 billion in 2026 – an increase of a staggering 215%. 

Businesses are borrowing nationwide

The demand for finance outside of London has also grown this year – something which is vital to our economy, considering access to finance is at the heart of the UK’s regional disparities. 

In 2021, Funding Circle helped SMEs located in every one of the UK’s 650 parliamentary constituencies, with an average of nearly £3 million in lending per constituency. This means SMEs in every corner of the country can not only navigate a challenging business environment, but also invest in their business, thrive and create more jobs in their local communities. 

To see how a Funding Circle business loan can help you, check your eligibility in 30 seconds today. 

26/05/22: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.