The UK government’s Help to Grow scheme has seen “painfully slow” uptake from small businesses – “despite the current economic landscape leaving many of them in desperate need of support,” according to an update shared with CI.
Mikkel Velin, Co-CEO of B2B embedded lending provider YouLend, which works with digital commerce platforms (inc. eBay and Shopify) in order to offer merchants access to fast and reliable funding, explained during a recent conversation with CI that this is “the result of a lack understanding from the government, as well as from traditional financiers, around how to effectively assess which SMEs should qualify for support in the 21st century.”
Mikkel, who is experienced in the area of “modernizing risk assessment for SMEs and its impact on financial inclusion,” pointed out that the latest developments in the UK government’s Help to Grow scheme will be disappointing for SMEs across the country – “but not surprising.”
“In fact, it’s just the latest development in a similar story for SMEs over recent years – whereby vital funding has been unfairly inaccessible if a business has only been trading for a certain amount of time or total revenue falls below a certain limit.”
He also mentioned that the requirement to have at least five employees to qualify “not only excludes hundreds of thousands of SMEs but highlights – yet again – that there is a deep misunderstanding of what data is actually useful and effective when determining which SMEs qualify for support.”
Recent trends and technological developments “mean that a more sophisticated and nuanced approach to assessing SME eligibility for support is needed,” he noted.
He pointed out that “you only need to look at the digital world of commerce, where employee count does not reflect the true value that a business adds to the economy.” He added that an online shop may be “run by one person, yet can still bring in more revenue than a 10-person brick-and-mortar business and create more value for other businesses and down the value chain, such as suppliers, service providers, or customers.”
New data shows that 16% of businesses “are side hustles – typically run by one person – which are very unlikely to be eligible for funding and support within the current, or traditional, qualifiers.” And yet, they “enable their owners to supplement their income and have potential to become businesses that go on to create jobs.”
The update also mentioned:
“Where many providers continue to go wrong is the deep misunderstanding of what data is actually useful and effective when vetting SMEs, be it for financing or management consultancy. Resilient SMEs – new and old – are operating online and through omnichannel. This provides a wealth of new data, which is more sophisticated than ever before.”
The update further noted:
“While size, credit-payment behaviour and time trading are certainly useful indicators, they do not paint the complete picture. Enhanced information that identifies non-credit payment behaviours and metrics that track perception of the SMEs amongst their customer bases must also be considered when it comes to determining future success and risk levels. But governments and traditional lenders continue to only rely on half the picture.”
In order to really support SMEs effectively, “a full overhaul of how we assess SMEs’ eligibility must happen.” Objectivity and the use of every contextual data source “is the next step, which is possible today,” the update noted.