As 2020 draws to what many will consider a welcome close, it’s time to look forward to what 2021 will bring in terms of SME finance.
The outlook has brightened with the emergence of several vaccines, which should lead to an easing of lockdown restrictions and a gradual return to business as usual. However, most of the government’s supports schemes, such as the Coronavirus Business Interruption Loan Scheme (CBILS), the Bounce Back Loan Scheme (BBLS) and furlough will end, while deferred VAT payments become due in March.
To a large extent, funding requirements will depend on how each individual business weathered lockdown. Those that thrived, either because of strong cash flows or increased demand for their products and services, may wish to expand. Those that struggled may need to secure funds to support their recovery, especially considering the stay of execution for companies at risk of insolvency ends in December.
The good news is no matter what your company’s needs, there are a number of financing options available. Here are a few we expect to be most in demand next year.
Let’s start with two that we’re already getting more inquiries about at Swoop. Many firms are seeking to unlock funding through commercial mortgages and asset finance. According to the latest SME Finance Monitor, published by consumer insight consultancy BVA BDRC, 42% of SMEs have started to plan for life after the pandemic. Some need access to funds to take advantage of the drop in value in commercial premises caused by the lower footfall during lockdown. We also think demand will rise for acquisition finance as the winners look to consolidate and grow their market share by taking over their weaker rivals.
One challenge all companies must deal with during an economic slowdown is late payments. 34% of SMEs have been affected because of the pandemic, and the problem is likely to get worse as Brexit disrupts supply chains. We’ve noticed an increased number of inquiries about invoice finance lately, another trend we expect to continue next year.
The shift to ecommerce has led to the introduction of new types of financial products. Lenders have access to additional criteria to assess loan applications after companies had to open accounts with payment providers like Paypal and Stripe to process online orders. For instance, lenders can now monitor the success of a Google ads campaign and use that data to guide their decisions.
Another recent innovation is revenue-based lending. Lenders can use pre-covid transaction data collected from credit card terminals to predict how much income an SME might generate as it recovers from the pandemic. They can then link repayments to top-line revenue, a more flexible option for a borrower than a traditional bank loan.
Finally, the number of startups always increases following a recession either because workers who lost their jobs set up on their own or entrepreneurs rush to fill gaps in the market. After the 2008 financial crisis, the government launched the StartUp Britain campaign to support the country’s economic recovery. Budding business owners can take advantage of a similar scheme this time around, known as Start Up Loans, which allows them to borrow up to £25,000 and also provides mentoring.