Business Money

Leading Industry Report shows small businesses need for flexible debt repayment solutions to survive the next 18 months

Publication: Business Money
1st July 2020

Funding Xchange's Quarterly SME Lending Monitor highlights the need to address the stresses currently experienced by up to 40% of the businesses who have borrowed from alternative lenders.

Funding Xchange is the leading online portal appointed by the government to direct small businesses unable to access funding from their high street bank to other lending providers.

Data from March to June indicates that up to two out of every five businesses that currently have loans from 'alternative lenders' are now in discussion with the lenders as they are struggling to fulfil their repayment programmes as a result of the coronavirus lockdown impact.

'Alternative lenders' have provided another option for business who are unable to access funds from their high street bank. They have become established following the last financial crash as the market looked to introduce a more competitive business lending market.

Those very lenders are now facing issues themselves with limited capital to lend further to businesses. Without a flexible approach that ensures struggling borrowers make repayments, they themselves may be forced out of the market, reducing the competition that the government has been so keen to establish.

Chief executive of Funding Xchange, Katrin Herrling said, “It is no surprise that the data we have collected through the Funding Xchange platform over the past quarter indicates that many businesses are facing a difficult financial future in terms of their cashflow. To address this the government introduced the guaranteed loan support schemes, with repayments of these loans typically delayed by 12 months. Unsurprisingly, a large proportion of businesses have also sought concessions from alternative lenders as they their cashflow dried up during the crisis. There now needs to be a focus on how the repayment programmes are managed if we are to avoid putting businesses under further cashflow pressure, and potential failure, with a knock on impact to the lenders.”

Open Banking data does offer a solution according to Herrling. “The data that we are now able to draw from Open Banking sources, matched with credit and business performance data, lets us plot when and how a business can manage loan repayments without causing additional distress to the business's financial position, and as such ensure the business's ongoing viability. This is an area we are now working on with the 'alternative lenders' and the banks, and indeed are looking for the Pool E RBS Remedies Fund being managed by BCR to help us with, so that we can provide to them the models to help them with their decisioning and loan repayment restructuring.”

The monitor also draws out that many of the smaller businesses that needed financial support as a result of the Covid-19 pandemic were actually unable to access it.

Whilst start-ups and sole traders have accounted for 40% of the requests for loans, less than 5% of these have actually been funded.