Paul Christensen, CEO of Previse reflects on SME borrowing over the last two years and how the financing industry needs to innovate to benefit SMEs.
2021 has been yet another tough year for British businesses of all sizes. As the pandemic continues and the wider economy works to build back better, it is SMEs who are impacted the worst, whilst larger companies are seemingly faring much better.
For businesses to get through the last two years and not only survive, but have thoughts of growth; they need access to financing. From government loan schemes to private investment, to in some cases the bank of mum and dad; there have been a range of financing sources called upon. With repayment commencing in an environment of uncertainty, supply chain issues and rising costs – 2022 will be a challenging time for our SMEs.
Across nearly all industries, the digital transformation that was delivered at an unprecedented rate since 2020 has continued. There is however one key area where innovation seems to be lacking. That is within business finance, upon which so many SMEs are reliant.
Previously, if SMEs received financing from a more traditional source, the terms tend to be set by the lender, and are very rarely in favour of the borrower. There is no reason why both parties cannot benefit from more flexible financing arrangements. Speed is necessary to help SMEs to plan for the future, and this includes the pace at which they are able to make financing decisions. It gives them the confidence to invest and to employ more people. It keeps cash moving quickly throughout the supply chain. For SMEs to have the best chance to succeed, funders and SMEs need to start working together.
Let’s make inflexible financing a thing of the past
In 2022, with the numerous pressures on businesses, from rising raw material prices to volatile shipping timetables, an increasing number of SMEs will become aware that financing can be flexible and tailored to their needs.
In the first three quarters of 2020, SME lending had already reached double the amount of the previous year, reaching £54bn, according to ukfinance.org.uk research. This increase can be partially attributed to the government loan scheme. Nationally, UK lenders have issued 229 Bounce Back Loans Scheme (BBLS) and 10 Coronavirus Business Interruption Loan Scheme (CBILS) facilities for every thousand businesses, dwarfing loan approval volumes seen in previous years. Additionally, since the extension of government support from November 2020, UK Finance estimates that £600 million of funding has been made available through the topping-up of existing BBLS facilities.
In the United States, the government loan programme, the Paycheck Protection Program (PPP) was operated. In total, the PPP made loans of just under $800 billion to SMEs, according to the final weekly report on the scheme in May 2021 from the US Small Business Administration.
With government loans being just one source of funding for SMEs during the pandemic, it is clear the levels of help that were, and will continue to be needed. From drivers and farmers to beer brewers and bakers – small businesses are the backbone of our economy and will drive our recovery.
As repayment of the government support steps up alternative sources of funding are needed to fill the gap.
Banks continue to be the traditional lender, with a plethora of hoops that need to be jumped through by potential borrowers. Business plans, an extensive trading history and potential restrictions around what the funding can be used for, all can impact an SMEs ability to access the cash they need. Add to that, repayment terms that are strict with little room for flexibility, banks can be an intimidating and prohibitive source of funding.
Previse has used 2021 to continue to grow and develop its data-driven working capital finance. Designed specifically for SMEs, InstantAdvance provides businesses with the capital that they need, with terms that are there to support them. InstantAdvance offers repayments that can flex in line with revenue, fixed fee pricing and no personal guarantees or security needed. It is perfect if a SME needs quick access to funds for new staff members, purchasing of stock or growing their marketing spend.
Continued digital transformation will drive us forward
Getting financing for your business does not have to be the painful process that it once was.
With the smart use of data that exists in platforms such as bookkeeping applications, e-invoicing tools and online banking there is no need for in-person appointments, business plans or long reports on the future vision of the business. By using this approach businesses can benefit from significant process efficiencies, receive funding much more quickly and continue to help the economy build back better. As SMEs now need to juggle the repayment of Government loans on top of their normal expenses, further funding from other sources will be essential. InstantAdvance has been designed to ensure we can assist as many SMEs as possible. It is our commitment to ensuring that the small and medium businesses who employ so many, can continue to flourish to the very best of their abilities.
2022 is the year to build on the technology and innovation that is driving progress and use it to make sure SMEs across the world are able to continue to drive the next generation of innovative change.