Getting funds to SMBs is the new imperative across the globe as nations look to reopen businesses and get people back to work. The pandemic has thrown accessibility of funding for SMBs into sharp relief and alternative financiers are stepping up to the plate. I talked to one such financier, Ian Duffy CEO of Accelerated Payments to get his views on the brave new world of SMB funding.
How will Covid-19 affect future collaboration between banks and alternative funders?
There has been huge disruption in the financial services sector over the last few years, creating a generation of customers demanding convenience and immediate access to finance. This ease and availability of capital can be delivered during boom times but when you are moving into a recession – irrespective of the type of recession – funders will inevitably tend to become more risk averse.
Covid-19 has already seen a huge contraction in the global lending markets for SMBs. Three patterns have evolved, namely;-
- Several of the banks have announced losses in the first quarter after booking provisions for bad loans arising from Covid-19. As a result, many High Street banks are closed for new business from the SMB sector as they focus on supporting their existing clients and ensuring loan losses/liquidations are minimised.
- In parallel alternative funders are experiencing a slow down and/or withdrawal of funding lines as institutional debt markets tighten. This is further tightening the funding pool with obvious market implications.
- For those funders that can access funding, it will be at a higher cost reflecting the risk reward appetite of the wholesale debt market.
Couple these patterns with increased regulation and compliance requirements it makes it even more challenging and onerous to provide lending to small businesses.
Ironically the current pandemic is likely to drive deeper relationships between banks and alternative funders. What the market is going to require is alternative “specialist” financing, such as that offered by Accelerated Payments, matching specific requirements to an SMB. The bank’s role will be a triage system identifying what the SMB needs and point them in the direction to the right product with the right fit. There is a joint responsibility between banks and alternative funders in supporting a collaborative effort so that SMBs can access finance fast to survive and thrive.
In building meaningful partnerships which share each partner’s resources long-term, there is an opportunity to build an exciting fintech ecosystem.
What have you seen in terms of how different countries have responded to Covid-19?
The impact of Covid-19 has been very real and impacted all sides of globe. There has been some degree of consistency in how countries have dealt with the pandemic – particularly across the jurisdictions where we operate in Ireland, UK, USA and Canada. Whilst governments have done their best to react quickly to changing climate and a global economic shrinking, there has still been significant confusion about business and funding. There is a pent-up issue in terms of impairment and company failure meaning we will see a further retraction.
Ironically, many SMBs in North America and the UK are cash rich. The problem will show itself in the next six to twelve months when businesses seek to restart or recover back to pre-Covid levels which will require significant amounts of capital. This will be the greatest test to companies, fundamentally as to whether they can continue to trade through recession. We hope to be able to help as many of these companies as possible.
What does the future of “normal” look like?
I think that Covid-19 will take at least 18 months to two years to correct itself. We are heading into uncharted territory that is hard to predict.
From a global business perspective, a vaccine is critical, but the timeframe for when we find one that can be appropriately tested, and mass produced remains to be seen. “Nimble and Quick” is the hallmark as businesses have been thrown to embrace a culture of adaptability. Although the economy shows some sparks and splutters of a return to “normal” it does pay to look at how far we have moved in a relatively short amount of time. There was a global standstill, a total shut down and never-ending delays in the first half of this year. So, regardless of the speed at which countries open again I do not see us going back on the next 12/16 month to the strong levels of trade that we saw in January/February of this year.
From an Accelerated Payments business perspective, we are extremely fortunate in that our model has held up during the pandemic with little or no impairment in our book. This puts us in a strong position to be able to support SMBs over the coming months. Throughout the crisis we have kept the product the same doing what we do best, individual receivables finance. And we will continue doing so regardless of what is thrown at us in the future.
From an employee perspective I think there has been a paradigm shift. What might have evolved over five to eight years regarding remote working and work practises has transitioned in a reasonably short time (three months). For Accelerated Payments I think the best model will be a hybrid model which would see some employees coming into the office some of the time. There will be extreme cases where individuals will not come into the office at all and others who will choose to be in most days. I think that it is going to suit a lot of people who now have the choice of having lower cost accommodation in more remote suburbs or move to even more rural settings. Working from home removes the need for commute, which as everybody agrees is not the best use of people’s time. For those who would prefer to work from home more permanently we have actively invested in equipment for staff across territories.
And finally, what does the future strategy look like for Accelerated Payments?
Accelerated Payments plan to continue as we started. Whilst we have had opportunities to grow more rapidly, we have chosen to run the growth race at a pace where we can understand precisely what is happening. We are constantly looking and analysing the parameters of growth and the consequences of changing each aspect or perspective.
Many FinTech companies have expanded for the sake of expansion grabbing at the market. But – there is a direct and obvious consequence of this in terms of quality of the book and their ability to apply enhanced learning.
Saying this, Accelerated Payments continues an ambitious path to grow our global book. I’m very passionate about adapting technology as a means for improving client experience and combining it with our deep knowledge and skills of the team. Longevity for SMB funders must be based on a business strategy that ensures continuity through several business cycles and credit cycles and an understanding of issues businesses will face in the downs and as well as the ups. Our team reflects this with those who have 20-30 years’ experience in the banking and SMB funding sector sitting alongside individuals who are relatively new to the sector. It is a perfect balance between reactivity vs. risk and we have produced a model than can work with this.
Here at Accelerated Payments we remain open for business and positive in our future and the future of our clients.