As one may anticipate, SME lending tanked as COVID consumed the world. In fact, Funding XChange reports that liquidity dropped by a whopping 80% but the “current path suggests a recovery to pre-crisis level.”
The document states:
“Despite the continued uncertainty about the course of the pandemic over the coming months, the question remains how to transition back to market-based lending and support the fragile green shoots that are emerging as lenders are returning to the market – while avoiding government interventions that will hold back a return to functioning SME lending markets.”
Of course, the UK government’s COVID support programs have aided in all of this. At least initially, the programs focused on more traditional bank lenders but Funding XChange says that returning to sustainability will require a “strong focus on non-bank lenders and challenger banks.” The report says that about 50% of lending to SMEs is done outside of high street banks with smaller firms struggling to access bank loans.
Interestingly, Funding XChange notes that new platforms entering the market are providing some of this access to capital (15%) – firms “unencumbered by a legacy portfolio.”
The report adds:
“Nuanced support that nurtures a return to market-based lending rather than displaces it will be vital to ensure UK businesses are receiving the support they require to continue to navigate the path ahead. One key challenge is how the market might normalise following the low-cost, interest holiday, extended-term length flavour of the government schemes, and BBLS in particular.”
As further support by the UK government is anticipated Funding XChange believes it is vital that policymakers engage both with traditional banks and non bank lenders.
See the report below.
Funding Xchange Lending Monitor Q4 (Green Shoots in Autumn)