There’s no denying that the recent years have indelibly changed the finance landscape as far as small businesses are concerned.
The Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) were an unprecedented response to the disruption caused by Covid-19. They have helped many SMEs stay afloat at a time when regular income has fallen dramatically or become non-existent.
But, some 20 months on from the first case of Covid-19, we are finally starting to see the light at the end of the tunnel. As of June 2021, the UK government has reported that more than 70 million vaccine doses have been administered across the country.
However, applications for BBLS and CBILS closed at the end of March 2021. As such, small businesses looking for finance will now need to turn to other sources. But how will “traditional” lenders’ appetite for risk change? And what alternatives are there? Read on to learn more.
Flexibility a key priority
As BBLS and CBILS were both government-backed schemes, they were accessible and attractive for lenders and SME applicants alike. This meant that lenders’ appetite for risk increased tremendously, despite the state of the economy.
But even though new applications for both schemes have closed, the economic impact of the pandemic will not simply vanish overnight. Many businesses will still be in a weaker position than they were before lockdown, and cash flow loans will still certainly be necessary.
So far, some £69.8 billion has been lent through BBLS and CBILS. It is fair to assume that traditional lenders will arguably not have the appetite to continue at such a scale now the schemes have concluded.
This means that SMEs seeking funding will increasingly have to look to alternative finance to find more flexible lenders.
How can fintech help?
As many traditional lenders’ appetite for risk shrinks, new fintech firms are increasingly emerging as alternative options for flexible and accessible finance.
Many of them are leveraging technology to improve user experience – making onboarding and applications considerably easier – and to expedite or even make decisions on funding.
Thanks to a range of different technologies, loans that would have traditionally taken weeks or months to complete can now be provided in a matter of minutes.
The Recovery Loan Scheme was launched in April as a replacement for CBILS. It is specifically intended to enable business owners who want to support growth plans after the pandemic and can be used to facilitate new equipment, new staff members, or to manage your cash flow. The scheme offers loan sizes ranging from £25,000 to £10 million, with no minimum turnover and no personal guarantee necessary for loans up to 250k.
Whilst the government guarantees 80% of the loan to the lender, so far, only a handful of lenders have been accredited by the British Business Bank. Funding Circle has most recently been accredited for the Recovery Loan Scheme. Funding Circle was the third-largest provider of finance under the CBILS scheme and is set to represent a large proportion of the alternative finance market for the Recovery Loan Scheme.
Which technologies will alternative lenders use?
AI, blockchain, and machine learning are increasingly being used by alternative lenders to automate underwriting and onboarding processes.
Machine learning and AI can be used to quickly assess a business’s performance by reviewing its online accounts and statements in a matter of seconds – where a human would otherwise spend hours or days doing so.
Algorithms can also be used to predict defaults – and in some cases can be more accurate than manual human processes.
Ultimately, as small businesses come to require flexible, tailored finance, the tech will increasingly be used to automate processes and provide them with the agility they need in today’s economy. CBILS demonstrated the vast ability for lending in the alternative finance market. In comparison, traditional banks’ lending systems have proven to be more inflexible. The future of the alternative finance lending market looks to be more and more prominent.
To get in contact with Funding Bay and our roster of alternative finance lenders, get in contact here.
