By John Rozenbroek, Chief Operating Officer (COO) at Capify UK
At Capify, we’ve worked with SMEs for more than a decade and we know they are the lifeblood of the UK economy. However, it’s these businesses that have faced some of the greatest challenges during the coronavirus pandemic, with many forced to stop trading throughout England’s national lockdowns.
Although the Government has introduced a number of measures to support the UK’s businesses during this period, which included three different business loans, access to funding remains a huge challenge for many businesses.
At a time when there is a huge amount of economic uncertainty and with the UK facing a potential double dip recession, supporting SME recovery has never been more important, but how can we do it?
Government support for SMEs
When the Government implemented lockdown 2.0, it also announced a raft of new or extended support measures for businesses. As such, the government-backed loan schemes, including the Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS), the Future Fund and finally the Bounce Back Loan Scheme (BBLS), were extended to allow more businesses access to this support.
The BBLS, which offers loans of between £2,000 and £50,000 (capped at 25% of total turnover) has so far been issued to over 1.33 million businesses – making it the most popular of the available schemes. In comparison, the CBILS, which is available for both SMEs and larger firms and offers loans between £50,000 and £5milion has so far provided funding for more than 73,000.
One of the main challenges that SMEs face when it comes to finance is the speed in which they can receive their funding, and despite the current circumstances, this remains a huge issue.
Why SMEs are turning to alternative solutions
Since the global recession in 2008, opportunities for new ways of banking have emerged, and we’ve seen the evolution of a wave of online financial services companies in the fintech space. These new businesses brought with them a range of benefits that were incredibly appealing to SME’s whose business models are less structured than larger corporations.
This new technology allows alternative lenders, including us here at Capify, to approve loans much quicker and more easily than ever before. Businesses now have the potential to access bank accounts, payment methods and funding within days or sometimes hours of applying. What was traditionally a long and complicated process can now be done quickly, and from anywhere at any time. Unlike the traditional lenders methodology of requesting business plans, budgets and face to face meeting with the bank manager, alternative lenders can use technology to understand a business quickly from just the bank accounts and a few other key pieces of information which gives the alternative finance industry a huge advantage to quickly approving a customer’s loan.
Another key benefit of fintech solutions is the flexibility they can offer. For example, unlike a traditional loan, finance can often be paid back little and often. With small, regular repayments businesses don’t have to worry about any lump sums and can better manage their cashflow.
During the current pandemic, new measures and restrictions have been introduced at speed and for small businesses this has meant having to adapt quickly and with little time to prepare. Although it’s predicted that in 2021, we may begin to return to some form of normality, for SMEs, having access to finance quickly and easily through alternative lenders will be a huge lifeline in the post-Covid recovery years.
The role alternative lenders will play in a post-Covid recovery
With SMEs making up 99.9% of UK businesses, supporting and boosting these kinds of enterprises is going to be key to the UK’s financial recovery following the COVID-19 pandemic.
However, with the government enforcing stricter COVID-19 measures that have seen some businesses close for an indefinite amount of time, the future for some SMEs still remains uncertain. This, combined with the current government-backed loan schemes coming to an end on January 31, means many SMEs are having to explore alternative solutions to fund their recovery and growth plans.
High street lenders are often still the first port of call for small businesses that need finance purely because that’s historically been the primary route for funding. But in recent years that has shifted, and alternative lenders have carved out a significant share of the market.
Alternative finance providers have played a key role in economic recovery before and they will do so again. Government support will ultimately come to an end, but there are also many business owners who have already exhausted all of their options in terms of the loans and grants available, or who were simply not eligible in the first place.
The speed and flexibility of alternative finance will be crucial to help SMEs continue to bounce back, and for businesses that are having to respond and adapt to the ever-changing landscape, this will be vital. A lot of alternative lenders are SMEs themselves and understand the need for speed and flexibility to be successful in today’s world.