Small businesses need “flexible debt repayment schemes” in order to survive the next 18 months, a leading industry report claims.
The quarterly SME lending monitor, by online business funding marketplace Funding Xchange, 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 an online portal which directs small businesses unable to access funding from their high street bank to other lending providers.
The data shows 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 established themselves following the last financial crash, as the market looked to introduce a “more competitive business lending market.”
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These lenders are now facing issues themselves with limited capital.
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 keen to establish, Funding Xchange said.
“It’s no surprise 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,” said Katrin Herrling, chief executive of Funding Xchange.
“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,” she said.
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The monitor also shows many of the smaller businesses that needed financial support as a result of the COVID-19 pandemic were actually unable to access it.
While start-ups and sole traders accounted for 40% of the requests for loans, less than 5% of these have actually been funded.