High street banks may not have the risk appetite to support SMEs through the years following the pandemic. Fintech is the solution many will turn to.
Thanks to the Government’s business support schemes, nearly £66 billion of finance has been handed over to the country’s small businesses by a diverse set of lenders to support them through the pandemic. However, not all will make it to the other side, and traditional banks will be saddled with bad debt which may shrink their risk appetite. It’s up to alternative lenders to continue to provide the funds in order to keep Britain’s dynamic small businesses thriving.
The British economy suffered its biggest contraction since the Second World War and government borrowing has reached levels not since the First World War. Last Spring, the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme were put in place at lightning speed for SMEs to have a chance of surviving the pandemic. Over 100 lenders were accredited under the scheme and two thirds were made up of challenger banks.
With the Bank of England now predicting a swifter and more sustained recovery than they had expected a few months ago thanks to the vaccine rollout and government support measures, the question of recovery is on business leaders’ lips. At MarketFinance, we’ve funded over £3 billion to UK companies. We know these funds are going on their fight to protect, support and recharge their businesses.
However, the British Business Bank has predicted that around a third of small businesses will contract over the next year. This will put many entrepreneurs in a difficult position as they struggle to repay what they’ve borrowed during the pandemic and before. Banks are no doubt scared that they’ve not seen the bad debt yet, which may in turn prompt them to be more cautious around applications for finance. Even robust small businesses might struggle to be approved for funding from traditional lenders.
Alternative finance, fintech and non-bank lenders will need to step up as we did following the 2008 financial crisis. Strong and solid small businesses offer the UK a road to recovery and the finance industry owes it to them to give them the tools they need to survive.
As we come out of lockdowns and restrictions, SMEs need to be able to plan for the future, and they need to know it’s one they can and should be part of. Enabling businesses to rebuild their working capital, strengthen their cash flow and plan realistically for their future is crucial right now. And it’s only possible with other lending options.
We’ve seen the pandemic speed up digital adoption in many different areas of our society and enterprise. Finance and lending should be no different, for consumers as well as businesses. In fact, the Government’s Help to Grow Scheme is an excellent example of prioritising and enhancing digital capabilities in British businesses and helping them grow and stay relevant.
Easy-to-access, straightforward and digitally available funding solutions are increasingly necessary in the pandemic world and will continue to be so. It’s up to lenders to be able to deploy funds quickly and fairly, to support those who will benefit the most. Having the right finance in place empowers small businesses to grow and prosper.
This is a time when businesses need confidence to invest for their future. While 2020 presented UK small businesses with extraordinary challenges, ensuring they have the capital required to survive is mission critical.