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Leaning on alternative lenders so SMEs can survive COVID-19 fallout

By  Scott Donnelly, CEO, CapitalBox

The past year has been hard, and there are many challenging days ahead for small businesses. A health system stretched to the maximum, a failing economy and a huge amount of loss has made business and individuals worried for the future. We stand unsettled as the world as we know it has come to a standstill. Since the first lockdown in March nearly 100,00 SMEs have closed their doors for good, and thousands more are barely keeping afloat as we endure the second wave. Now it is time for the finance industry to come together to create as much optimism and support for the small business community as possible.

The focus for many small businesses in this time is to stabilise cashflow. This has a direct negative impact on business growth opportunities and progression, as digital transformation and new talent hires take a back seat as businesses try to stay above water.

As we emerge from a second lockdown into a harsh tiered system, businesses must understand where to turn to access finance to get through 2021. Typically, traditional banks, known for their reluctancy to lend to small businesses, do not offer much success. Alternatively, replying on alternative lenders can often be more fruitful.

Using business challenges to drive innovation

Given the latest news and the global economic backdrop panic and negativity seem to dominate the news cycle and business sentiment, but I believe that innovative alternative lenders can be a reliable ally to help SMEs through these challenging times.

It may come as a surprise, but recessions are known to be fertile ground for business innovation. Some of the most famous and successful businesses of all time, including Microsoft, Uber and Burger King, were founded during some form of economic downturn. It may sound counter intuitive, but successful entrepreneurs can learn a lot more from challenges than they do from success. Navigating economic headwinds involves agility, creativity and courage, thereby adding to an entrepreneur’s problem-solving toolkit and instilling the kind of business discipline that will continue to reap benefits long after the cycle has recovered.

For most small businesses COVID-19 is the largest challenge they have had to face. But amid all threats some companies have found ways to forge ahead through new commercial opportunities. Take Stitch & Story, the online crafts firm with 11 full-time employees, selling materials and offering tutorials to teach people how to knit. From a kitchen table start-up to huge growth the business has recently seen an 800% increase in sales.

Helping small businesses to stay afloat

Small and medium sized businesses make up 99% of all EU businesses. They drive growth, provide employment opportunities and the creation of new markets. These essential SMEs today need our help and support.

The current pandemic has caused many financial markets to grind to a halt, resulting in businesses struggling to keep their heads above water. Small and medium sized businesses tend to be the worst affected due to their smaller equity cushions and heavy reliance on a steady cashflow.

Due to increased regulation, gone are the days that you could walk into a bank and easily get a loan for your small business. Over the last 10 years banks have had to tighten their belts and reduce their SME exposure to stay compliant with their own capital requirements.

Individually, most SMEs don’t require millions in lending – which also means they are low priority since most banks can’t process these small loans efficiently with their legacy processes. They basically just aren’t worth the trouble.

Despite the introduction of measures by the UK government to help boost lending to small business, such as the Bounce Back Loan Scheme and the Coronavirus Business Interruption Loan Scheme (CBILS), there is still a huge gap in funding. Recent records show 769,137 applications have been made, yet only 608,069, worth £18.5bn, have been approved. Delaying the process further, technical glitches, errors and delays have meant that thousands of SMEs are still waiting for their loans.

Without access to the right funding, small businesses will not grow, and some will not survive, which can lead to higher unemployment and possibly a recession. It is critical that small businesses have the ability to weather the current storm and be ready to grow quickly once life normalises again.

Surviving the ever-changing climate

Unfortunately, hardship for our SMEs doesn’t stop at difficult business loans. The impact of a second wave of the pandemic is sadly going to end in the closure of many small businesses. SME owners are in fact more concerned about the second wave of COVID-19 than they are the impact of Brexit – which let’s not forget is also around the corner.

From lockdown, to freedom, to back into lockdown. The current climate is constantly evolving at a rate that small businesses need quick and accessible financing. As applications from small businesses soar, we have seen how traditional lenders are taking months to process requests. As a fintech ourselves, we have the technology to speed up these processes. With a hybrid AI and human decision-making platform, after a simple 5-minute application, SMEs can look to borrow up to £250,000. The time it takes from application to having the money in the bank can vary between 2 to 3 days – this speed is critical to the future of SMEs and their survival through dark times.

With this pandemic has come many lessons for small businesses. Most importantly, organisations must take the time to revaluate their financial situations and understand which way to turn for help – this is the only way to boost operations and move to a new reality. From the impact of World War 2, to the great recession in 2008, SMEs have made it through challenging times before, and they will do so again in the future. As they once were, they will thrive as the foundation of our economy, supported by alternative lenders helping them in their most worrying time.