iwoca secures £270M in debt funding to support SME lending

Today, SME lender iwoca announced a new £270 million package of debt funding, bringing the company's total gross investment to over £1 billion since its founding in 2012.

Specifically, iwoca has received £150 million in debt financing commitments from Citibank and Insight Investment to support the company's growth in Germany and a further £120 million from Barclays and Värde for the UK business as it responds to mounting demand for finance from small businesses.

I spoke to Christoph Rieche, iwoca CEO and co-founder, to learn more.

Since its launch in 2012, iwoca has provided £3 billion in loans to SMEs needing working capital in the UK and Germany.

iwoca's increased funding comes from data that shows that more high-street banks are reducing their funding for small and medium-sized businesses.

Iwoca research data finds that three-quarters of brokers report that high street banks are reducing their appetite for funding SMEs, while nearly nine in ten (86 per cent) expect demand for finance to increase over the next six months.

The British Business Bank's annual report on Small Business Finance Markets also finds that specialist and challenger lenders' share of total gross lending reached a record high last year, now accounting for three-fifths (59 per cent) of the market.

iwoca's embedded fintech allows businesses to access loans directly through various platforms, including Qonto and Countingup.

According to Rieche:

"People come to us because our services are much better than conventional banks. We deliver many decisions in real time or within the day. We offer a very flexible product. They don't get that service from banks. So, people are moving towards products that are more suited to them. 

The other reason why they're coming to us is that many businesses also wouldn't get approved by their bank for credit. So we not only offer a better service, but we offer it to more people."

In-house data-driven business decisions

Iwoca has delivered over 130,000 loans over the last ten years. 

A digital-first, data-driven perspective has enabled the company to grow, especially as machine learning capabilities have increased. 

According to Rieche, the company's in-house built software has provided the ability to offer the best possible service to our customers:

"This enables us to offer fully automated lending decisions, including people drawing down funding without speaking to a human unless they want to. And from smaller amounts to lending £500,000 to businesses within a day or two. 

This is a very diligent process that is just very streamlined from a data and technology perspective. Our technology enables data capture much better than a traditional bank would. We can also do very diligent reviews because the data is presented to our providers in such a clean way. "

More data means more insights, with Rieche explaining:

"We have a lot of data about SMEs in addition to all of the SMEs that come to us and provide us with additional data. We have a lot of data about their bank statements and transactions.

So, we have enough data to run machine learning processes to continuously find details in our lending decisions that enable us to make better decisions."

The power of company culture

I'm always curious about what makes challenger banks distinct from their contemporaries. 

Rieche contends that iwoca's culture is very different from that of banks and most other companies in the industry. 

Rieche contends that the company has forged a culture that is passionate but humble:

"Giving out loans is a risky business in our world. The worst thing that could happen to us is to become overconfident. So we try to have a fairly humble culture where we're quite reflective about our performance, ourselves, and our relationship with customers, rather than sort of being a very kind of hot-blooded sales company." 

"Our general focus is improving the core and having a more principle-based approach, even if that's sometimes slower and frustrating to some salespeople."

I was curious about iwoca's ability to gain debt funding when many companies are struggling to scale to new markets or shedding staff. Rieche explained: 

"Having done this for a decade, we've lived through several really difficult periods like COVID, the European and Greek crises. Our investors have seen us trading now through several cycles and, and have trust in us.

This is a debt facility that enables us to provide funding to small businesses. It's a lot harder to raise equity in the current environment. We could raise equity because of our performance and gross profitability."

Lead image: Christoph Rieche, iwoca CEO and co-founder. Photo: uncredited.