Alternative lenders are in danger of failing, as small-and medium-sized enterprises (SMEs) struggle to repay their loans amid the coronavirus pandemic.
The latest quarterly SME Lending Monitor by business finance aggregator Funding Xchange has found that from March to June, up to two out of every five businesses that currently have loans from alternative lenders are now in discussion with the lenders. This is because they are struggling to fulfil their repayment programmes as a result of the Covid-19 lockdown impact.
Alternative lenders have provided another option for businesses which are unable to access funds from their high street bank. However, these lenders are now facing issues themselves with limited capital to lend further to businesses.
Without a flexible approach, they themselves may be forced out of the market, reducing the competition that the government has been so keen to establish.
“It is no surprise that 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 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.”
Herrling said that open banking data offers a solution.
“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 added.
“This is an area we are now working on with the alternative lenders and the banks.”