This article is by Andrea Reynolds, CEO and Co-Founder of Swoop Funding – a business funding and savings platform enabling businesses to discover the right funding solutions across loans, equity and grants, and to identify and easily make savings.
As we approach the end of what has been one of the most challenging years in recent memory, I thought I’d take this opportunity to look ahead to what 2021 may bring in terms of SME finance.
Generally, trends are driven by developments in the economy, so the emergence of several coronavirus vaccines bodes well. As restrictions ease, business activity will resume and revenues should slowly return to pre-pandemic levels.
However, many SMEs will have to deal with decisions taken to survive lockdown. Government support will start to recede as measures like the Coronavirus Business Interruption Loan Scheme, the Bounce Back Loan Scheme and furlough end. Meanwhile, deferred VAT payments become due in March.
The kind of funding required by SMEs in 2021 will depend on how they fared during lockdown.
Those that struggled will need finance to support their recovery, especially as the stay of execution for companies at risk of insolvency expires at the end of December. Here at Swoop, we’ve already noticed an increase in demand for commercial mortgages and asset finance as firms seek to unlock vital funds.
Of course, both of these types of finance can also be used by businesses fortunate enough to thrive during the pandemic, either because they had healthy cash reserves or experienced rising demand for their products and services.
According to the latest SME Finance Monitor, published by consumer insight consultancy BVA BDRC, 42% of SMEs have started to look past the immediate impact of the pandemic and plan for the future. For instance, some may take advantage of the drop in value of commercial property due to lower footfall on the high street.
Demand for acquisition finance should grow too, as stronger companies acquire weaker rivals to expand their market share.
One universal problem during a slowdown is late payments. 34% of SMEs have been affected because of the pandemic, and with Brexit likely to disrupt supply chains, others may experience delays in the coming weeks and months. We’ve seen a steady increase in inquiries about invoice finance lately, which we expect to continue next year.
Innovative new products
The shift to ecommerce as a result of the pandemic has led to the introduction of new types of loan products. As SMEs opened accounts with payment providers like Stripe and PayPal, lenders gained access to additional channels to monitor their revenues and expenditure.
That allows lenders to use alternative credit criteria, such as performance metrics. So if your company enjoyed a strong return on investment from a Google ads campaign, you might be able to borrow more.
Revenue-based lending, another recent innovation, leverages credit card terminal data to assess applications. Lenders forecast future revenues according to an SME’s pre-covid transactions and link repayments to top-line revenue, offering borrowers greater flexibility than a traditional bank loan.
Surge in start-ups
Another typical consequence of an economic slowdown is a rise in the number of start-ups, either from redundant workers setting up on their own or savvy entrepreneurs spotting a gap in the market due to structural changes.
Just as the StartUp Britain campaign helped the country get back to work after the 2008 financial crisis, budding business owners can borrow up to £25,000 through the government’s Start Up Loans scheme.
While the outlook for 2021 is generally positive, uncertainties linger. We’ll have Brexit to deal with, and we’ll eventually have to start paying back the money borrowed by the government to offset the impact of the pandemic. The good news is whatever the shape of your business after such a tumultuous year, there are various finance options available to meet your needs. To find out more, get in touch with us at Swoop.