How can alternative finance help your business during difficult times?

alternative finance
© Volodymyr Melnyk

Scott Donnelly, CEO, CapitalBox, discusses how alternative finance can offer support to SMEs during uncertain times

This is obviously a very difficult time to be the owner of a small business. Second waves, new lockdown restrictions and economic uncertainty across Europe, can result in a lack of confidence across the SME community. Today, more than ever, SMEs need as much support, confidence and hope as they can get.

Small businesses across many sectors have re-invested in their recovery but the last six months have certainly been a test that has taken a toll on their balance sheets.

Now, as we enter the inevitable winter phase of the pandemic, small businesses need to know what sort of financing they can access. Instead of looking towards traditional banks which commonly either don’t lend to small businesses or make it very difficult to do so, leaning on alternative lenders can be more fruitful in times like these.

It is time for the financial services sector to innovate to tackle the shadow of doubt currently held over the small business community and shine a light on the resiliency of these entrepreneurs who are the backbone of our economies.

The foundations of entrepreneurial spirit

Given the latest news and the global economic backdrop, panic and negativity seem to dominate the news cycle and business sentiment, but I believe that innovative alternative lenders can be a reliable ally to help SMEs through these challenging times.

It may come as a surprise, but recessions are known to be fertile ground for* business innovation. Some of the most famous and successful businesses of all time, including Microsoft, Uber and Burger King were founded during some form of economic downturn. It may sound counter-intuitive, but successful entrepreneurs can learn a lot more from challenges than they do from success. Navigating economic headwinds involves agility, creativity and courage, thereby adding to an entrepreneur’s problem-solving toolkit and instilling the kind of business discipline that will continue to reap benefits long after the cycle has recovered.

For most small businesses COVID-19 is the largest challenge they have had to face. But amid all threats some companies have found ways to forge ahead through new commercial opportunities. Take Stitch & Story, an online crafts firm, with 11 full-time employees, selling materials and offering tutorials to teach people how to knit. From a kitchen table start-up to huge growth the business has recently seen an 800% increase in sales.

Supporting our SMEs through wave two

Small and medium-sized businesses makeup 99% of all EU businesses and drive growth, provide employment opportunities and the create of new markets. These essential SMEs today need our help and support.

The current pandemic has caused many financial markets to grind to a halt, resulting in businesses struggling to keep their heads above water. Small and medium businesses tend to be the worst affected due to their smaller equity cushions and heavy reliance on a steady cashflow.

Due to increased regulation, gone are the days that you could walk into a bank and easily get a loan for your small business. Over the last 10 years, banks have had to tighten their belts and reduce their SME exposure to stay compliant with their own capital requirements.

Individually most SMEs don’t require millions in lending – which also means are low priority since most banks can’t process these small loans efficiently with their legacy processes. They basically just aren’t worth the trouble.

Despite the introduction of measures by the UK government to help boost lending to small business, such as the Bounce Back Loan Scheme and the Coronavirus Business Interruption Loan Scheme (CBILS), there is still a huge gap in funding. Recent records show 769,137 applications have been made, yet only 608,069, worth £18.5 billion, have been approved. Delaying the process further, technical glitches, errors and delays have meant that thousands of SMEs are still waiting for their loans.

Without access to the right funding, small businesses will not grow, and some will not survive which can lead to higher unemployment and a possibly a recession. It is critical that small businesses have the ability to weather the current storm and be ready to grow quickly once life normalizes again.

Overcoming COVID-19

Unfortunately, hardship for our SMEs doesn’t stop at difficult business loans. The impact of a second wave of the pandemic is sadly going to end in the closure of many small businesses. SME owners are in fact more concerned about the second wave of COVID-19 than they are the impact of Brexit – which let’s not forget is also around the corner.

From lockdown, to freedom, to back into lockdown. The current climate is constantly evolving at a rate that small businesses need quick and accessible financing. As applications from small businesses soar, we have seen how traditional lenders are taking months to process requests. As a fintech ourselves, we have the technology to speed up these processes. With a hybrid AI and human decision-making platform, after a simple 5-minute application, SMEs can look to borrow up to £250,000. The time it takes from application to having the money in the bank can vary between 2 to 3 days – this speed is critical to the future of SMEs and their survival through dark times.

We have faced crises like this in past and we will face them again in our future – this time, alternative lenders are here to truly help make a difference.


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