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SMEs are more resilient than we give them credit for

By Simon Cureton, CEO of Business Finance Marketplace, Funding Options

It’s an unfortunate truth: bad news sells. So, it’s no surprise the narrative around UK SMEs over the last 12 months has painted a bleak picture. While we cannot forget the casualties caused by the pandemic or pretend it’s been anything other than an exceedingly challenging environment, there are silver linings.

When faced with adversity, UK independent businesses demonstrate incredible resilience, agility and perseverance. And the impact of Covid-19 has seen business owners rise to the challenge, pivoting their business models and displaying the entrepreneurial grit you’d expect from people driven by solving problems. And that spirit won’t be diminished by this. In fact, Office for National Statistics figures show a surge in the number of business registrations as 2020 closed out – comfortably higher than 2019 and pre-Covid levels.

Despite a chastening start to the year – the end of the Brexit transition period and the UK enduring a third lockdown – the fast roll-out of the vaccination programme has revealed a light at the end of the tunnel. It’s time now to think about life beyond the Covid-19 derailment and to get back on track. One which offers greater competition, innovation and choice when it comes to the growth options available to businesses.

We welcomed the Chancellor’s decision to allow small businesses more time to repay state-backed loans to help them get back on their feet using a “pay-as-you-grow” initiative. This will help to liberate businesses from the shackles of debt taken on while in survival mode.

The extension affords business owners the freedom to operate as they might have done pre-pandemic. Encouraging businesses to incur a debt mountain they can never conquer would be wilfully irresponsible. It is hard to remember life before Covid-19 and even harder to anticipate what the world will look like beyond the pandemic. But, at the opportune moment, businesses must feel confident and mentally unburdened enough to invest. Because it is through growth that the UK’s SMEs will drive the economic recovery.

At that moment, they will need a vibrant, agile and diverse lending ecosystem to support them creatively and expeditiously.

Boosting market-based lending

Simon Cureton

Simon Cureton

Where the government has diligently stepped in to offer comprehensive support schemes, it has also eschewed the opportunity to embrace fast-emerging alternative lenders. With less market-based lending activity, the BBLS and CBILS schemes have reduced the level of choice and competition for UK businesses. Lenders have been tethered to a lamppost, unable to offer their own products, which in many cases would facilitate funding faster.

This backtracking from its determination and commitment to offer SMEs greater competition has slowed the development of the UK’s thriving fintech industry somewhat – but it is far from too late. ‘Survival funding’ must become a thing of the past and be replaced once again by growth funding to ensure a bright financial future

With the Chancellor Rishi Sunak expected to provide further updates in his Budget next month, it’s essential that decisions are driven by a determination to boost market-based lending, harnessing the collective capabilities of the alternative finance providers.

As we eventually reduce the economy’s reliance on government-backed schemes next year, we hope to see a resurgence in the SME lending market. Whether it returns to pre-Covid levels remains to be seen, but we expect to see more lenders offering their own solutions. In this scenario, lenders will be able to distribute their products and services much more efficiently, utilising proprietary platforms and infrastructure.

Giving fintechs a seat at the table

To a reassuring extent, the industry has withstood the pressure, with a huge number of loan approvals and an acceleration in the digital agenda. But it has also highlighted two problems. The first being the level of fragmentation in the sector – with high street banks, challengers, neo banks, alt-lenders and fintechs all vying for market share. The second problem is that at the start of the pandemic, agile fintech players were sidelined as the government leaned heavily on the incumbent banks.

Having said this, following criticism early last year, the government opened up the scheme to more players. If there is a lesson to be learned, it is that these businesses shouldn’t have been left out in the cold when it came to the crunch – particularly as the UK has long been heralded as the epicentre of fintech advancement.

It’s safe to say, Covid-19 has proved to be the catalyst for action, particularly in the SME lending space to drive more innovation and also to highlight the fissures in the industry that still need to be tackled. This will arguably usher in significant change and digital disruption in the coming years.

However, there needs to be a shift in mentality where the fintech sector is no longer seen as the “cool kid” on the block but is properly recognised as playing a critical role in a crisis of this size. In response, an independent Fintech Strategic Review led by Ron Kalifa OBE is currently underway to look at how the nation can foster innovation, maintain an ecosystem that supports growing businesses, and promote the integration of new technologies.

It’s imperative that innovation is not stifled and instead encouraged to prosper during turbulent times. There is a lesson to be learnt here, where we need a real balance between banking and the fintech sector. Open banking was introduced to do just that – level the playing field – however its impact has been challenged. In future, the government and the fintech industry need to work in unison to champion not just SME recovery but their growth.

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