Alternative financing is a lifeline for SMEs under lockdown

As the UK enters another lockdown, businesses around the country - especially small companies - are fighting for their survival.

While COVID-19 rages, SME lending in the UK has tanked and liquidity has plummeted by 80% since the pandemic began. 

Government-led schemes including tax deferrals and government-backed loans have helped SMEs stay alive (some continuing to trade at reduced levels, others furloughed) but cash flow problems will continue to prevail during the second confinement and beyond, as companies seek to get back to ‘normal’ trading volumes. 

Funding from the incumbent banks will remain constricted, but alternate funding is available through the fintech community and can offer a lifeline for companies in most need - and companies must educate themselves about the options available.  

Seek out fintech alternatives

During the crisis, equity crowdfunding sites, peer-to-peer (P2P) lending and invoice trading platforms have been successful in providing SMEs with funding solutions that use technology to offer speed, transparency and flexibility for financing that would otherwise not be available to them.

In addition, fintechs like these have been able to disperse funds with government schemes quicker than banks, because they’ve automated onboarding, ID verification and instant bank account setups. But these schemes are coming to an end and SMEs will need to source funding from non-government sources in the near future.

Ian Duffy, CEO, Accelerated Payments

“Better tailored products for SMEs and more diversified options for funding have come through”

There’s also been a shift in incumbents looking to tech-enabled lending and partnering with fintechs to fulfil demand. Better tailored products for SMEs and more diversified options for funding have come through, too.

These alternatives have helped thousands of businesses to not only stay afloat during the pandemic, but to also access the capital they’ve needed to launch new products, hire new people and expand into new markets. The hope now is that more business owners will begin to do the same and embrace what is a new age of business finance.

Surviving cash flow problems

When hard times hit, it's not just about getting the money in, but keeping the money in; SMEs need to look at preserving cash flow. Survive, revive, thrive - that’s the mantra - and there’s a fintech solution for each of these areas.

Surviving is about short-term cash loans - which are available with P2P lending and crowdfunding. Reviving is about access to working capital (without the debt!), while thriving is about securing the supply chain and keeping on top of those things to do well. These latter two requirements can be met through invoice financing, which allows companies to borrow the money they need to cover unpaid invoices that a client owes a business in a process that is transparent, reliable, straightforward and quick. 

What happens is an invoice financing company funds a major part of the amount a supplier is owed in the invoice. When the invoice is paid by the client, the business pays a small percentage of the invoice amount back to the funder as a fee for borrowing the money. This financing option allows businesses to ensure they have sufficient funds in their coffers so they maintain their cash flow effectively.

While much has been made of the rise of alternative finance in the last few years, awareness among business owners remains low. We need to change this during the pandemic - not only for the survival of these companies, but for our economy as well.