Chirag Shah

Has alternative lending moved into the mainstream?

2020 has been a year of unprecedented global disruption that no one could have predicted 12 months ago.

The economic impact of coronavirus lockdowns has been devastating for many sectors, grinding some of them to a complete halt. But as we approach the end of the year, we explore the learnings from 2020 and what the outlook is for the industry next year.

‘A year of resilience’

Over the past 12 months, the alternative finance industry hasn’t been immune to the outbreak — it has been one of the most challenging years we have ever faced. Like many SMEs, lenders have had to adapt their working practices and services in order to best support businesses. One of the biggest changes the industry experienced was the launch of the government-backed lending schemes. Since the introduction of these, businesses have shown huge demand for emergency funding: By 20th October 2020, £62bn had been lent through CBILS, CLBILS and BBLS. Importantly, alternative and fintech lenders have been able to act as a vital conduit to provide SMEs with the crucial funds they need.

Due to the role we, as an industry, have played, I believe 2020 marked the year that alternative lenders were starting to be considered as mainstream by SMEs. Fintech lenders like Nucleus Commercial Finance can now provide SMEs with funds quickly and, as a result, we are seeing more businesses turn to our industry as their first point of call.

Repeating the rewards of technology

We expect this trend to continue to grow in 2021, with one of the main drivers being technology. We are now starting to see the benefits of investment in technology — such as AI and machine learning — as fintech lenders can now make underwriting decisions faster than ever before. We are, however, only at the start of this journey; technology will continue to mature and become more sophisticated over the months and years ahead. This will lead to fintech lenders moving closer to ‘one-click lending’ of substantial sized loans next year.

Looking ahead to 2021

The importance of speed and flexibility will continue to be prevalent in the year ahead. Businesses still face two of the biggest challenges of their time: the twin forces of Covid-19 and Brexit. While the pandemic outlook looks brighter due to the expected roll-out of various vaccines over the weeks ahead, businesses will still face significant financial challenges. The government-backed coronavirus support schemes will come to an end, and we expect many lenders will struggle to provide funding once this does. For the lenders that are in a position to lend post-CBILS and BBLS, we predict that we will see the development of more innovative and flexible solutions to support UK SMEs. 

When we consider Brexit, this has been on the back burner for many SMEs over the past 12 months, as they have been dealing with the impact of the pandemic. Many will have to restructure their business and adapt their offering to operate in a post-Brexit world. Again, this will present major financial challenges and, as an industry, we need to be on hand to support businesses as they navigate through the challenges.

The end of 2020 will be a relief for many businesses across the UK. They have managed to ride this storm, but they will still face choppy waters in 2021. Alternative and fintech lenders have demonstrated their role over the past 12 months, and we are now primed to support UK SMEs; we must continue to educate and innovate to provide the lending which could boost businesses and help position them for future success.

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