Alternative Lending: The industry’s predictions for 2021

By Daniel Lanyon on Monday 18 January 2021

Alternative Lending

We hear from the alternative lending industry’s leaders on what we can expect over the next 12 months as the pandemic continues to bite.

Alternative Lending: The industry’s predictions for 2021
Image source: Photo by Anna Shvets from Pexels

The global pandemic has wrought huge change to the alternative lending industry. Initial concerns about the strength of loan books and how the industry's first big economic shock would play out quickly gave way to an opportunity to help distribute government-backed funds to SMEs for some.

It is no surprise then that how these hundreds of billions of pounds (globally) of government-backed loans perform is central to our star panel of alternative lending leaders predictions for the next 12 months. 

Enjoy!

 

Pent up demand from SMEs for loans

Amany Attia, CEO, ThinCats 

“2021 will present a different set of challenges for lenders. Where 2020 saw lenders working with businesses in response to the impacts of the covid pandemic, particularly around working capital, 2021 will likely see a need for working capital and growth capital, including for acquisitions, as the economy starts to expand once more; businesses will need to address deferred debts such as tax or rental payments and invest to make the most of the post-pandemic environment.”

“With many lenders having focused strongly on CBILS during the second half of 2020, we believe there is a large pent up demand to fund transactions which didn’t qualify for CBILS, such as MBOs, once CBILS applications close.”

“The economic benefits of national vaccination programmes will take some time to come through, so it will be important for us to keep close to our existing borrowers to provide further support where necessary. For the mid-sized sector on which we focus, our ability to provide a personal, local and flexible service to advisers and businesses remains key.”

 

Online lending is here to stay

Lisa Jacobs, Europe Managing director, Funding Circle

“Small businesses will play a key role in powering the economic recovery. Whilst the challenges they face are not yet over, it has been brilliant to see how small businesses have adapted and navigated this pandemic. We welcome the Government’s commitment to introduce a successor scheme after the CBILS and BBLS programmes end. Doing so will help create a positive long-lasting lending environment where small businesses can access the finance they need to invest, maintain and create jobs.” 

“Online lending is here to stay. The role of technology-led financing will continue to grow in importance, due to the speed and simplicity it can offer. For CBILS loans processed by our instant decision technology, businesses complete their loan application in 6 minutes on average, receiving a decision in as little as 9 seconds and funds in accounts in 6 days. We are pleased to represent 25 per cent share of the number of CBILS loans approved since we began participating in the scheme.”

 

Huge defaults on Government-backed loans

John Davies, Executive Chairman, Just Cashflow. 

 “In 2020 COVID-19 caused severe problems for businesses and it was clear that fintechs were not seen as being part of the solution. Intense lobbying eventually led to a number of fintechs being approved to distribute CIBLS, however, this was without access to funding costs at parity with traditional banks. It would be interesting to see just how many of those eventually approved distributed any volume outside of refinancing their own books. You have to have empathy for Tide who was the first fintech (and I think only) to be approved for BBLS and then got cut off at the knees when access to additional funding was required – in my opinion unfairly damaging their reputation.”

“In 2021 once Government funding/support ceases there will be significant company closures causing a huge range of defaults on Government-backed loans which in turn will cause significant turmoil for those that distributed them. As a result, we can expect there to be little or no further appetite to lend to small businesses unless there is future Government intervention.” 

“For the fintech sector, I can see no prospect of access to Government-sponsored cheaper funding and this will inevitably cause liquidity issues (it doesn’t have to be this way). Without the ability to scale there will be increased trading losses and if there is no near term return to profitability VCs will also be hesitant to back. As this unfolds I expect Vultures to circle. Not the most cheerful predictions for 2021 but I expect the non-bank lenders who come out the other side will have prepared for this.”

 

Some lenders will struggle

Chirag Shah, CEO, Nucleus Commercial Finance 

“Over the last nine months, UK SMEs have been able to access the crucial funding they need to survive through government-backed loans. Alternative and fintech lenders have played a paramount role in this, thanks to their ability to provide finance at a faster rate than high street banks. However, as we step further into 2021, supporting these small businesses in a post-CBILS and BBLS world remains vital.” 

“We’re likely to see many lenders struggle to provide significant funding once these schemes come to an end, and it’s clear that those lenders who are tech-centric, will have a bigger part to play. Thanks to AI and automated underwriting, as well as the ability to create innovative and tailored solutions, these lenders will play a crucial role in 2021 and beyond, helping SMEs to not only survive, but thrive in a challenging environment.”
 

More institutional capital for lenders

Rod Lockhart, CEO, LendInvest

"While we currently remain in the depths of a cold dark winter and covid lockdown, vaccination provides a welcome light at the end of the tunnel. Over the coming months, I see the UK attracting an increasing amount of institutional capital which will be allocated through alternative lenders. At the same time, with CBILS and BBILS lending coming to a close, banks will turn to focus on their loan books and most likely be more restrictive in their lending to certain areas, providing opportunity for the alternative lenders to step in. I think it's going to be a great year for alternative lenders, those that will truly excel in this new environment are the ones that have proven out their business models over the past year, and shown that their technology gives them an edge."

 

Opportunities ahead

Daniel Bartsch, co-founder and COO, Creditshelf 

“2020 was a remarkable year. Not only for our customers, the German SME sector, but also for creditshelf as a lending platform. Enormous amounts of liquidity were provided by the German government to the credit market, unfortunately exclusively through the traditional house bank system. From our point of view, it was a missed opportunity not to use digital platforms and the fast processes that come with them. However, this unique crisis is above all a test for the risk models of credit platforms. To date, creditshelf has not witnessed any significant loan defaults, in fact, our  portfolio proved to be very resilient.”

“Looking at 2021, we are very confident that the light at the end of the tunnel will soon become sustainably brighter and that we will experience the rapid upswing predicted by many economists. For alternative lenders and lending platforms, we see great opportunities ahead, as demand for debt capital will be growing against the backdrop of banks facing challenges of rating migrations and increasing capital requirements. For investors, be it in the form of debt or equity, we believe it is a good time investing in German SMEs given their solid risk-return profile and the resilience of Europe's strongest economy.”

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