Only 22% of businesses have been accepted for government-backed loans. What does this mean for the 78% of those who are unsuccessful?
For businesses that have applied for alternative finance, are there any significant trends that have been highlighted that could be linked to COVID?
We gain insights into what business types have made the most finance applications; what products have led to the most applications during the pandemic; and the demographic breakdown of applicants in the UK.
Statistics from the Office of National Statistics show that 22% of businesses that are currently trading have applied for Government-backed accredited loans or finance agreements, such as the Coronavirus Business Interruption Loan Scheme (CBILS). However, only 22% of businesses that applied for Government-backed loans have received this scheme.
It means that 78% of businesses who have applied for finance are either waiting for a response or have not met the qualifying criteria and have likely been unsuccessful in their application.
To get a better understanding of the businesses that have used the alternative finance market to find funding for their business, we have assembled a set of statistics. These statistics are designed to provide further insight into how companies have tried to navigate COVID. It includes what products have been most popular with our users, the demographic breakdown of our application audience, and what business types have been more inclined to apply for business finance.
Application statistics detailed breakdown
1. Popular business types
*Sample data taken from anonymous SME Loans Google Analytics data, from 2,515 applicants over the period of 01/07/2020 until 24/08/2020.
Since the start of July, there has been an increase in applications being submitted for financial products compared to the previous period. The majority of businesses that applied for finance were limited companies (57%) followed by sole traders (33%), with 10% of companies not specifying their company type.
Out of the total businesses that applied, over a third were startups which had been trading for 0 months. The reason why there was a high amount of startups who applied for finance could be as a result of the difficulty in acquiring startup funding during COVID. Despite the Future Fund scheme being introduced at the start of June to help startups, only 590 loans have been approved so far leaving many startups having to look elsewhere for funding.
2. Popular financial products
*Sample data taken from anonymous SME Loans Google Analytics data, from 2,515 applicants over the period of 01/07/2020 until 24/08/2020. **Sample data take from Google Trends under the search term ‘startup business loans’ over the period 01/07/2020 until 24/08/2020.
The five most popular product pages that our users searched for were
- Startup business loans (46%)
- Limited Company Loans (6%) & Islamic Finance (6%)
- Sole Trader Loans (4.4%)
- Self Employed Loans (2%)
Startup business loans were the most popular product which led to an application on SME Loans. Google Trends data shows that throughout July and August, there has been a fluctuation in interest in the UK regarding startup finance. Peak interest for startup loans was mainly found during July.
Our stats are contrary to Government figures, which state that there had been a small decrease in businesses being created in Quarter 2 of 2020, in comparison to the previous year. Although the decline is not particularly pronounced, COVID-19 has been considered the root cause for the slowdown of business births during this period.
However, our research has shown that 64% of people would like to start their own business, but 41% found that business finance was the biggest concern for starting a business. Furthermore, with more businesses being impacted and resorting to redundancy and laying off employees, it could lead to more startups being created. These points would indicate that ambition is not an issue, that it is likely securing finance in addition to COVID-19 for a slow down in startups being created.
3. Reasons why businesses are applying for business finance.
It is clear that businesses have applied for finance to try and navigate through the pandemic, especially since the various Government-backed schemes were offered for interrupted businesses. However, getting an insight into specifically why they’re applying for finance is difficult to guess confidently.
We already know that the many businesses that took part in a government-backed scheme are required to use their CBILS loan to help support trading in the UK. Requirements include using the finance to manage cash flow, buying inventory, developing a project, and more.
4. How much is being borrowed?
*Sample data taken from anonymous SME Loans Google Analytics data, from applicants over the period of 01/07/2020 until 24/08/2020.
Interestingly, over half of companies applying for business finance were looking for loan amounts lower than £10,000. One third of companies were looking for business finance greater than £10,000. 14% of companies that applied for finance were looking for an amount greater than £50,000.
Demographic statistics breakdown
5. Gender demographics
*Sample data taken from anonymous SME Loans Google Analytics data, from 831 applicants over the period of 01/07/2020 until 24/08/2020.
Our research showed that demographically, two-thirds of businesses that applied for finance were run by men. When broken down into sole traders and limited companies, 70% of limited companies were run by men, in comparison to sole traders where men ran 60%.
Despite a review into female entrepreneurship in 2019, our stats highlight the current gender gap problem that women still face in business and entrepreneurship in the UK in 2020. It would seem in COVID that the trend still persists and women are still underrepresented in business.
6. Age demographics
*Sample data taken from anonymous SME Loans Google Analytics data, from 802 applicants over the period of 01/07/2020 until 24/08/2020.
Our research shows that it was 25-34 year-olds who made up 42% of business finance applicants since the start of July. Based on stats taken from Finder, 25-34 year-olds only make up 12% of business owners in the UK. It could suggest that it is this age group that have struggled the most to secure funding for their business.
The next most significant age group was 35-44 and 18-25 year-olds, who both made up 20% of finance applications to SME. The smallest group was the 45+ year-olds, who made up 18% of applications.
7. Region demographics
*Sample data taken from anonymous SME Loans Google Analytics data, from 2,332 applicants over the period of 01/07/2020 until 24/08/2020.
In the United Kingdom, 89% of businesses that applied for financial products were based in England. 7% of applications were from Scotland, 3% from Wales, and 1% from Northern Ireland.
The largest proportion of businesses that applied for business finance were based in London, which made up 28% of total applications. This insight is unsurprising as London has received the highest number of both the Bounce Back Loan Scheme and CBILS loans as shown by British Business Bank research. The high concentrations of businesses based in the capital city is likely the reason for such a high percentage of loan applications.
Frequently Asked Questions
What are the most popular financial products during the pandemic?
The five most popular product pages in lockdown have been:
Startup loans - 46%
Limited Company Loans - 6%
Islamic Finance - 6%
Sole Trader Loans - 4%
Self-employed loans - 2%
Why are startups looking for financing during the COVID-19 pandemic?
Startup funding has always been difficult to be accepted for, it is likely even harder during COVID-19. It has been reported that more and more startups are being created in light of people failing to find jobs due to the number of layoffs due to the coronavirus. The combination of the two could be the reason why there is a strong demand for startup funding.
How can startups find financing during COVID-19?
If you’re looking for startup funding during COVID-19 you can apply for a startup loan for a traditional or alternative lender. As a credit broker, SME Loans can help you find startup financing if you apply with us.
Alternatively, you can check out our ‘sources of business financing’ blog post, where we provide links to sources of finance for startups such as business credit cards, invoice financing and startup loans.
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