“Unprecedented” is one of those words that has become a coronavirus cliché but that doesn’t make it any less true. In 50 years grandparents will be harking back to what life was like “during the pandemic”; such is the pervasive impact on every facet of our society.
As the country went into the lockdown, the government introduced various measures to support businesses and sole traders struggling with the commercial and economic effects of Covid-19.
CBILS and BBLS
The Coronavirus Business Interruption Loan Scheme (CBILS), and the Bounce Back Loan Scheme (BBLS) brought about a sea change in the UK business lending market.
Without having to jump through too many hoops, businesses could access this government-backed funding with relatively advantageous terms.
1.2 million firms took it up, leading to three years worth of normal lending volumes in just a few months.
As the pandemic continued to bite, the CBILS and BBLS were extended by the Chancellor, with both now to cease at the end of March 2021.
What’s next for SME lending?
It’s clear that unlike CBILS and BBLS, there won’t be a hard full stop to coronavirus restrictions on 31st March. With the continuing economic impact of multiple lockdowns , businesses need to find ways to survive and even thrive. Beyond that, we can expect a surge in demand for growth finance as the economy recovers.
So what will business funding look like when the government money dries up, and how can SMEs keep cash flowing? Here are a few thoughts on how the landscape might shape up…
After the closure of the coronavirus government-backed lending schemes, we may see a drive towards asset-based lending. Assets secured against finance give lenders security and financial recourse if a business cannot pay its debts.
However with a shift away from traditional industries, no doubt expedited by the pandemic, fewer companies have physical assets like premises, vehicles or equipment.
An alternative is invoice financing or invoice discounting, where the invoice becomes the asset in question. For businesses that trade on lengthy credit terms, this presents a reliable way to release funds tied up in outstanding invoices, giving an immediate cash flow boost as well as providing certainty in uncertain times.
Low risk, accessible finance
Pre-pandemic, businesses (in particular those with a shorter track record) often were required to put their personal assets on the line when borrowing. Then came along the CBILS and BBLS, the terms of which meant no recovery could be taken over personal assets, with the loans backed instead by government guarantees.
As a result, moving forward we may expect to see a continued appetite for low-risk lending without personal guarantees.
In a similar vein, accessibility - the ability to raise cash easily- will not only be on a business borrower’s wishlist, but as a footing for lenders to remain competitive in the market.
There is loads of data to suggest that coronavirus has accelerated the so-called “fintech revolution”.
Now, more than 66% of us regularly use financial technology applications, an increase of over 50% compared to 2019 usage figures.
While this trend was already gathering momentum, lockdown forced financial services providers and their customers to rely on digital solutions.
They are unlikely to revert back to old offline ways post-pandemic. When you can secure funding in a few taps on your mobile, why would you do it any other way?
A new generation of lenders
The economic impact of coronavirus and the various emergency measures to prop up businesses for the duration of the pandemic will be long-term.
The traditional lenders which stepped in to provide CBILS and BBLS funding will ultimately have to recover what they have paid out. This will require robust processes to collect this debt, putting a potential strain on resources. It may also happen that post-covid, some lenders will lack either the desire or wherewithal to lend without government backing.
A new wave of alternative lenders will be needed to fill the gap. This can only be good for businesses. While CBILS’ and BBLS’ days are numbered, this can be viewed as a beginning rather than an end. The schemes have paved the way for fast, alternative SME lending, healthy cash flow and growth.
This article was originally published on 13th October 2021 and updated on 18th February 2021.