The respected quarterly SME Lending Monitor, published by government-appointed lending portal Funding Xchange, reports signs of ‘green shoots in Autumn’ with a tentative recovery in SME lending. But the close alignment between the number of coronavirus cases and the volume of the guaranteed government loan schemes taken by SMEs during lockdown leaves open the question as to whether the recovery will be sustained as cases rise again in the second wave.
Quarter three saw key SME lenders return to the SME lending market. Pointing out that 50 per cent of lending to those small businesses with less than £2m turnover is undertaken by non-high street lenders who suffered liquidity shortages at the outset of lockdown, the Monitor reports a return to liquidity. For key lenders, where liquidity dropped by up to 80 per cent during the crisis as measured by the number of lenders actively lending, a pathway to recovery is now emerging that suggests a recovery to pre-crisis levels.
A host of new entrants are fuelling this return to liquidity. Unencumbered by legacy portfolios and focused on digital solutions, these lenders represented almost one-fifth of loan offers made to SMEs via Funding Xchange in September. And businesses are benefitting; the 28 per cent of businesses reporting zero or positive impact from the pandemic are enjoying more than three times as many offers of funding as compared to the height of the crisis.
Less positive is the indication that, whilst lenders are returning, approvals are heavily weighted towards better quality credits, and more to established businesses than small and micro-businesses. 8 out of 10 those supported had been established for more than four years, and 9 out of 10 had an annual turnover in excess of £100k.
Katrin Herrling, Chief Executive of Funding Xchange said, “there are some reassuring signs showing through in this quarter’s monitor. History tells us that it is frequently in the economic recovery stage that businesses need additional cash flow. If the indicative trends in the monitor continue then it is likely that funding will be available to support the recovery for established businesses, but the signs are that the smaller and newer businesses may well still struggle to access the liquidity that they need, and a continuance of the government-supported schemes for this sector may well be required.”