Access to appropriate finance has always been an issue for small and medium sized businesses (SMEs). In difficult times – recession, or the banking crisis for example, the availability of funds to survive and achieve growth would usually reduce from the banks, which nevertheless remained the major suppliers of finance.
Post the banking crisis considerable efforts were made by the Government to encourage ‘alternative finance’ providers and a more competitive banking market. Gaps remained however. These were more noticeable in certain markets and sectors. Micro businesses (with under 9 employees) and early-stage businesses were widely recognised as the major sufferers. To achieve sustainability and profitability most funders gravitated upwards in size and became more selective in their approach.
Pre COVID-19 it was acknowledged, however, that there were substantial funds around to meet most viable business’ requirements. In practice, from our own experience at ART Business Loans, there was far less funding available from the public and private sector to support micro and small businesses. A high level of varied risk capital was available attempting to support the next ‘big success story’, although it was well recognised that the focus for that sort of funding was around London.
The COVID-19 pandemic has however seen a different dynamic enter the equation. With unprecedented support from Government, banks provided with a 100% guarantee were able to provide very cheap loans under the Bounce Back Loan Scheme (BBLS) of up to £50,000 – the size of loan most SMEs traditionally seek. Loan approval rates went up – hardly surprising as BBLS were provided using self-certification from customers – and were very widely used. More loans of under £50,000 were made to small businesses using BBLS in six months than would have previously made annually to the entire SME market.
This and the Government’s other initiative CBILS (Coronavirus Business Interruption Scheme), which offered loans of over £50,000, followed by the latest Government–supported Recovery Loan Scheme, have been essential and enabled many businesses to survive. However, they have also, in my opinion, potentially distorted the market and jeopardised future borrowers’ access to appropriate finance.
The challenge now and in the critical months ahead will be what will happen as we move away from those schemes. Resources used by all small businesses, such as family and friends, before the pandemic are likely to be scarce and we have already seen a considerable tightening by the banks in the use of the Recovery Loan Scheme.
The following questions arise:
- Will many borrowers, including new ones, find it more difficult to seek additional funding if their own trading record has suffered?
- Will the banks be as prepared to lend without the 100% guarantee?
- Will alternative lenders become more selective in their offers, excluding some sectors? Evidence of this is already being seen in many sectors, including hospitality and retail
- Will those alternative and additional lenders, including Community Development Finance Institutions such as ART Business Loans which lend where banks are unable to, be able to access more funds themselves to meet increasing demand?
After attending a number of recent events, I have formed the impression that it will be the private sector that will have to lead the way in terms of investment, as diminishing resources will be available in the public sector.
So, the finance world now faces an interesting challenge: to seek ways in which to support local economies, not forgetting that the small business sector is overall the largest and will need specific help and support.
Micro businesses account for over 80% of the whole stock of UK businesses and when added to small (up to 50 employees) make up 99% of UK businesses.
At ART we are expecting an increase in demand for loans and are ready to support small and micro businesses with loans from £10k to £150k. To apply for a loan, click here https://artbusinessloans.co.uk/apply-for-a-loan/ or give our lending team a call on 0121 359 2444.
October 20, 2021 3:19 pm