SME Lending: Latest support measures in Europe

Author: Paul Thomas

In these unprecedented times of social distancing and temporarily enforced business closures across many sectors, support for SMEs remains a high priority in order to combat the growing economic distress. Banks and lenders have taken steps to reduce face-to-face operations, temporarily closing many branches and call centres for the foreseeable future and are now working hard to serve their customers through digital channels in a bid to quickly and diligently deliver against the high demand of SME loan applications. In these challenging times, the flexibility and sophistication of technology to facilitate, review, decision and onboard has never been so crucial in the SME lending sector, where the scale of digital adoption is now accelerating at a rapid pace.

Following recent announcements from European governments to provide a range of financial support packages for affected businesses of the Coronavirus (COVID-19) pandemic, we look at some of the measures and coordinated efforts being implemented across the region.

United Kingdom

Last week saw the launch of the Coronavirus Business Interruption Loan Scheme (CBILS) by the UK government to help businesses with disrupted cashflow and ease them through the current crisis. Part of a wider £330bn support package, the loans offer an 80% government-backed guarantee to eligible businesses. The scheme is currently being delivered by a selection of accredited lenders, including the large banks, yet, alternative lenders, digital banks and fintechs including Tide, Funding Circle, Starling Bank, Aldermore and OakNorth have registered their interest directly or via open letters to the Treasury, to be onboarded on to the scheme quickly, in order to offer their businesses customers the relief funding.

Search engine traffic for business loans is also up 25% and lenders, aggregators, and brokers are dealing with a large spike in enquiries. Marketplace platform, Funding Options, has reported a significant increase in demand, with loan applications reaching £500m in one week. The speed of fund delivery is going to be crucial for qualifying businesses that need the working capital quickly, yet initial reports suggest some accredited lenders are requiring up to 14 days to review applications and only have the capacity to support existing customers for the first few weeks.

Spain

Spain’s government has now outlined its burden-sharing scheme for banks as part of state-backed credit lines to help companies limit the impact of the coronavirus crisis, releasing an initial fund of 20 billion euros. Of the total, half will be earmarked for SMEs and the self-employed, guaranteeing 80% of new loans and financing renewals. The remainder will go to medium and large companies with a term of up to 5 years.

To support existing borrowers in the immediate term, many lenders are also reviewing their repayment policies, including October, who have announced a three-month postponement of all loan repayments for small businesses.  Caixa Popular has also allocated 440m euros of capital to its 200,000 customer-base, available on advantageous terms across personal and business financing lines.

Germany

The German government has signed-off on a 750bn euro support package as well as emergency aid loans, guarantees and stakes in companies to keep businesses afloat. This includes unlimited sized loans with 90% guarantee backed by the KfW to ensure the support reaches impacted businesses of all size and scale. The Association of German Credit Platforms (Verband Deutscher Kreditplattformen) has welcomed the measures and confirmed that its members are ready to immediately deploy their lending platforms to target and distribute the aid loans quickly. The German Finance Minister also announced an initial 2bn euro finance package for start-up businesses, as an expansion of the KfW Capital program.

Demand is already high; Deutsche Bank and Commerzbank have reported over 10,000 applications in two days. KfW expects up to 100,000 loan applications in the coming days and weeks through commercial banks, and many fintech lenders, including Creditshelf and Kapilendo, are awaiting details on how they can get involved in the process and support. Scaling up remote operations and wider initiatives have begun, ready to ensure the cooperative banking sector can act swiftly to the demand. This includes VR Smart Finance, a subsidiary of DZ Bank, who are close to launching their promotional loan product amongst 500 partner banks, to address the predicted processing backlog and increased volume.

The Nordics

The Nordic governments have announced a commitment of almost 100bn euros to increase credit supply and capital injections for impacted SMEs. In Norway, a 10bn euros compensation scheme has been launched for businesses to cover part of the fixed costs for the next two months, in a bid to prevent further unemployment. Banks are responding to the increased demand for support through existing capital and the central funds with additional flexibility measures being applied e.g.  Nordea is now offering SMEs a three-month installment-free period.

The Swedish government has presented a stimulation package of 16bn euros which includes a 70% backed guarantee scheme for banks to support SMEs as fast as possible. Some initial reports from lenders suggest a slight drop in new loan applications.

As banks and SME lenders look at how they can best serve this demand decisively and manage existing portfolios effectively, providing digital access to finance and making fast and diligent credit decisions are going to be key. If you are starting to think about ways to improve your lending processes, if you're looking for advice or would just like to talk through your options at this challenging time, please get in touch.