The landscape for both borrowers and lenders over the past 18 months or so of the Coronavirus pandemic has been fast paced and changeable, requiring agility and flexibility from all parties.
One clear trend that has emerged over the last year and a half is the increasing resilience and availability of alternative lenders and challenger banks. As Government backed corporate loan schemes and arrangements come to a close, these types of lenders may well become increasingly attractive to businesses looking to refinance or secure funding for growth.
The challenger banks really are different from more established finance institutions as they are not afraid to harness new technology quickly, can provide more flexibility and faster turn-around times. All of the above is attractive to SMEs particularly as there are indicators that high street banks do not want the risk of supporting SME’s through the post-pandemic years.
Recent research from Innovate Finance shows that prior to the pandemic, alternative lenders and challenger banks contributed to 65% of lending to SMEs. During the initial months following the advent of COVID-19, this dropped, partly due to the fact that many alternative lenders were unable to provide bounce back loans and partly to the fact that there were initial obstacles and delays to obtaining accreditation for the Coronavirus Business Interruption Loan Scheme (CBILS) from British Business Bank for many alternative lenders.
However, the same research, estimates alternative lenders and smaller banks provided around 30% of all CBILS Loans to businesses in 2020. CBILS has since been replaced by the Recovery Loan Scheme (RLS) and many alternative lenders are still waiting to be authorised to offer these loans.
As we look forward in a post-lockdown landscape, however, there is an opportunity for alternative lenders and challenger banks to significantly increase their market share.
Over £70 billion in finance has been provided through government lending schemes to more than 1.5 million SMEs. After an initial respite, repayments began to fall due on these from June 2021, which may leave many SMEs looking for refinancing options and present an opportunity to alternative lenders.
In addition, there may well be a surge in demand for new funding, from SMEs who have found it difficult to fund growth during the pandemic. As businesses switch from just surviving to thriving, challenger banks and alternative lenders will have an important role to play here – especially those that can offer advice and support to growing businesses, as well as more flexible lending solutions.
Pre-COVID, a range of innovative alternative lenders and challenger banks were shaking up the SME lending sector. While this has taken a slight step-back during the pandemic, the opportunity is now there for the lenders who can adapt and respond quickly enough in this new, post-lockdown world.
This should be good news for alternative lenders and SMEs alike.