Kevin von Neuschatz, Group CEO at Stanhope Financial, explains how the post-pandemic recovery of SMEs can be expedited.

When the full extent of the pandemic was first revealed, governments around the world offered generous loan and furlough support schemes in an effort to keep companies afloat. Yet the fact remains that the majority of businesses will have lost customers, suppliers, and partners during this difficult period, and it will take time for things to return to normal.

Critical Support For SMEs

The pandemic also provided the big banks with the opportunity to offer critical support, and many did so. From mortgage protection plans to low-rate interest loans, there are numerous examples of large financial institutions doing their best to support the recovery. Yet the fact remains that for small and medium sized enterprises (SMEs) tier one banking services have remained out of reach for many years. This problem first arose during the 2008 financial crash, which triggered recessions in major economies around the world. Credit lines were pulled, due diligence, background checks and borrowing estimates revised, all making it harder for smaller firms to secure credit and finance.

The tidal wave of financial restrictions triggered by the 2008 crash also meant that many big banks withdrew their services from emerging or high-risk markets in an effort to reduce risk. The sad fact is that for many companies seeking access to high quality financial services, from payments to FX support, the banking infrastructure simply no longer exists anymore. 

SME boarded up amid covid-19 pandemicThrow in the chaos of the pandemic, with many businesses struggling to bounce back and the lack of support is profound and urgent. In the UK for example, there are around six million SMEs, which are a major source of employment and support for the wider national economy. Anyone who has ever founded a start-up business knows just how hard it is to attract investment. Many of these organisations are in the early stages of developing their product or service and it can take time to build a strong customer base and accelerate growth. These businesses would also benefit from new talent but paying sky high salaries is often a high-risk strategy when margins are tight. 

The bottom line is that many of these companies need external financial support. Bank lending is the most common source of external finance for many SMEs and entrepreneurs, which tend to be reliant on traditional debt to fulfil their start-up dreams. While it is commonly used by small businesses, however, traditional bank finance poses challenges to SMEs, in particular to newer, innovative and fast-growing companies, with a higher risk-return profile. 

The New Normal For SMEs

While bank financing will continue to be crucial for the SME sector, there is a broad concern that credit constraints will simply become “the new normal” for SMEs and entrepreneurs. It is therefore necessary to broaden the range of financing instruments available to SMEs and entrepreneurs, in order to enable them to continue to play their role in investment, growth, innovation and employment. It is now highly important for SMEs to provide credit as well as have legitimate loans, trading and payments support in the post-Covid climate. SMEs could try crowdfunding, or donations. In recent years, with the support of public programmes, it has become increasingly possible to offer hybrid tools to SMEs with lower credit ratings and smaller funding needs than what would be the practice in private capital markets.

Obtaining access to credit and payments support is critical for many businesses seeking to survive and thrive in a post-Covid economy. The time has come for tier one banking services to be accessible to companies of all sizes, and not just reserved for larger, more established companies.  The answer is to work with specialist fintech providers that can combine speedy online services with actual consultancy and advice to ensure the best products are purchased and delivered. 

For ambitious businesses keen to reboot following the devastation of the pandemic, the time for accessing tier one banking services is now.