By Nik Haidar on Wednesday 8 April 2020
The word most commonly used over the last few weeks is unprecedented. The situation is unprecedented. The scale is unprecedented. The impact on the economy is certainly unprecedented. And for the many millions of SMEs across the country (many of whom will have shut up shop, temporarily or permanently) the uncertainty levels they face is unprecedented.
The response from the government has also been unprecedented. The formation of the Coronavirus Business Interruption Loan Scheme (CBILS) with the remit to lend £330 billion is at a scale never seen before in the UK and way in excess of all of the lending of the past few years. The British Business Bank has approved a number of lenders to distribute the funds and SMEs can apply for up to £5m if eligible.
In the face of this, there is an unprecedented need for banks to revolutionize the way they support their customers if we are to see SMEs survive, recover and eventually, prosper.
Unknown territory for borrowers and lenders
Obviously, we are all in uncharted waters. The challenges for SMEs are not insignificant.
Most of them don’t know how to borrow money. The vast majority of the UK’s 5.4m SMEs don’t borrow from their banks. So, for many businesses, this might be the first time they have to go through the process.
Of course, they have to be able to contact their bank in the first place, and messages like the below are going out to small business owners across the country creating an even more challenging environment.
“We’re experiencing a high volume of calls. Please only contact us if your call is urgent and cannot be managed digitally so we can help those that need us most.”
If they can get through, they need to submit a flurry of documentation, such as the below:
Profit and Loss Statement - Last Financial Year;
Balance Sheet - Last Financial Year;
Profit & Loss - Current Year-to-Date;
Balance Sheet - Current Year-to-Date;
Cash flow forecast for the next 12 months;
So, a key issue for SMEs looking for funding is the amount of time it currently takes to prepare and submit an application. Most businesses won’t have their 2019 financial year closed and ready to share yet. All of them will be having to go through their accounting wrap-up while fighting to keep their businesses solvent.
The fear is – government support or not – that the help won’t arrive in time. Good businesses will die because they can’t get through the process in time.
“We’ve seen a 2000% spike in SME loan applications”
On the lenders’ side, the challenges are equally daunting.
Validis works with most of the big banks in the UK and many others abroad. The first issue they face is the sheer volume. Some lenders have told us they’re seeing a spike of over 2000% in SME loan applications. A staggering figure and a true reflection of the seriousness of the situation.
Volume is not the only challenge facing lenders. They are expected to help disburse the government backed funds quickly. But they are also expected to be compliant with all prevailing regulation as they do this. This requires a change in process at a time when their process is under more pressure than ever before. Technology can help ease the strain.
Lenders are also expected to be vigilant against fraud. They are expected to ensure that they are lending to businesses that were solvent and viable pre COVID-19. And of course, they need to ensure that everyone applying is eligible for a loan scheme that was only rolled out a few days ago. To answer these questions, they need the right data points, accessible for the right teams in a simple, streamlined way.
The reality is that the banks predominantly manual lending processes are a huge hindrance during an application spike like this. They lack the ability to ingest and integrate financial data seamlessly into the systems they have for management and analysis. And they lack the agility to change their legacy processes in line with ever-changing regulation.
For a long time “The Industry” has voiced the fact that digitising the lending process will lead to better outcomes for UK SMEs. This is true. Current manual processes are too expensive and lenders must fast track implementing technological solutions that will enable them to remove all the manual processes that can be reliably and compliantly digitised (Not all can, of course). The COVID-19 crisis brings into sharp relief how these unnecessary manual processes are acting as a deadweight on our SME economy.
No longer will a ponderous, expensive digital transformation policy suffice. The three-to-five-year roadmap needs ripping up. Lenders need to make immediate changes today, to the way they lend, to ensure SMEs get the help they need before they run out of working capital.
The FS community has a part to play
The FS community can look to itself for some of the answers. Best-in-breed digital solutions exist that can automate many of the lenders more cumbersome processes. SME bank transactions can be accessed digitally now. A company’s compliance history and activity are available digitally today, as well.
SME accounting data can be extracted, standardised and delivered to lenders in a usable, digitally-secure format, now, ensuring it arrives fit-for-purpose in order to drive the loan origination or credit evaluation process. A huge time saver for both the SME and the lender. Or in today’s environment – literally a lifesaver for the business.
The technology is there. The need is unprecedented. The situation demands lenders and vendors work collaboratively, creatively and in the better interest of the UK economy to find swift solutions. They must change their mindset in order to build a solution that is scalable, secure, compliant and fast. The livelihoods of many SMEs depends on it.
Time is running out
The institutions that lend to SMEs in the UK have a huge mountain to climb if they are to distribute the £330 billion assigned by the government within this accelerated timeframe. None of this was of their own making. But in these completely unimaginable times – we all need to think in completely different ways. To quote Viktor Frankl:
“When we are no longer able to change a situation - we are challenged to change ourselves.”
Their response must be now, it must be digital, and it must be unprecedented.