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Banking Circle CEOÌýAnders laÌýCourÌýsays tech can support lending to UK’s 5.9m SMEs

COVID-19 has brought about a host of new challenges for the UK’s small businesses.ÌýÌý

Arguably, one of the most pressing being how to access funds to remain afloat. It has been reported that a fifth of all UK SMEs could run out of cash during the crisis if not supported correctly.Ìý

But access to cash is not a new problem for business.ÌýÌý

Although banks are doing all they can to help businesses through the pandemic, and the government has rolled out the bounce back loan scheme, standard lending solutions and practices are still generally not geared towards SMEs, or the current climate.ÌýÌý

In order to help ensure UK SMEs survival, we therefore need to see the industry evolve its practices to make financial inclusion and lending for them a priority.Ìý

Existing issuesÌý

Aside from the Coronavirus ÀϾÅÆ·²è Interruption Scheme Loans, for UK SMEs looking to take out a loan in the current climate, one of the primary issues facing them is the time taken to become verified and accepted. The general industry average for clearing a loan is 60 days, and this is a pre-COVID-19 figure, meaning applications today are likely to be higher (and verification timings longer) than this.ÌýÌý

The main issue is that many traditional banks simply lack the underlying technology infrastructure required to increase the number of applicants they can process, or the speed in which this can be completed. This means that even if they wanted to ramp up their SME loan support, they are unable to do so.Ìý

Flexible technology to enable faster fundingÌý

To solve these challenges, a shift in focus for banks and payments providers towards a more customer-first approach is needed. This requires legacy infrastructure to be updated or replaced with more modern, flexible alternatives that are better able to meet the needs of the SME.Ìý

But, with Euromoney estimating that the total cost of maintaining legacy systems, investing in new systems and paying IT staff amounts to anywhere from 15% to 25% of a typical bank’s annual budget, this is not something many financial institutions can afford – especially in the current environment.ÌýÌý

As a reaction, we’re therefore seeing an increased shift towards a financial utility model, where financial infrastructure providers like us are supporting banks and payments companies so that they can focus on better serving their end customers.Ìý

Importantly, this enables banks and payment providers to come up with innovative solutions for SMEs, knowing they now have the underlying infrastructure to execute it. This can include lending propositions that are built and designed with the flexible requirements of the modern-day small business in mind; enabling the ability to calculate loan requirements, receive confirmed offers (and then funds) in just a matter of hours.Ìý

ThisÌýflexibility;Ìýsuch as being able to repay money based on cashflow, is extremely important for SMEs. Especially at a time where their income is likely to be significantly lower than normal.Ìý

A path towards greater financial inclusionÌý

SMEs have historically found it harder to become as financially included as their larger peers. The current environment however provides a great opportunity for the payments and banking industry to evolve this position.Ìý

There are 5.9 million SMEs in theÌýUK, andÌýlosing even just a small proportion of these over the next few months could significantly hinder the wider economy.ÌýÌý

It’s therefore in everyone’s interest that the financial infrastructure is in place to ensure that a business, no matter its size,Ìýhas the ability toÌýapply for, and access funds to keep its operations going.ÌýÌý

This should not just apply to the current COVID-19Ìýenvironment, butÌýbecome standard industry practice.Ìý