How Governments And Lenders Are Helping SMBs Through The Covid-19 Crisis
How are governments and lenders easing the pressure of the coronavirus crisis on small businesses?
The economic turbulence caused by the coronavirus is hitting small businesses incredibly hard. The average small business has just 27 cash buffer days, according to analysis by JP Morgan, highlighting the need for urgent financial support to avoid widespread failures as the global crisis intensifies. Governments, banks and non-bank lenders are coming together to offer emergency credit, but will this be enough to help small businesses survive? Here’s a snapshot of some of the targeted relief measures we’ve seen introduced around the world so far.
Governments globally have responded quickly with extraordinary financial support measures designed to assist small businesses (SMBs) as they deal with the impact of the coronavirus.
- In Mainland Europe, efforts have been focused on providing emergency funding options and minimising job losses through subsidies to employers. The French government is allowing companies to request deferral of payments of social charges, taxes and utility bills, whilst in Germany the government has pledged unlimited liquidity assistance to struggling companies, in the form of loans provided by KfW, the state development bank. In Switzerland, the government has launched an emergency loan scheme for small businesses worth $20bn which has received widespread recognition for its successful deployment of funds. The scheme leverages the country’s existing bank network to rapidly underwrite loans based on credit history and data they already hold on their clients.
- The UK Government has introduced a series of targeted financial support measures for SMBs, including grant funding and statutory sick pay relief. A new state-backed lending scheme, the Coronavirus Business Interruption Loan Scheme (CBILS), has been launched to provide credit facilities of up to £5m for UK SMBs who are experiencing disruptions in their cash flow caused by lost or deferred revenues. 40 lenders are currently signed up to offer lending through the scheme. This project has come under growing criticism as many believe the CBILS will not reach the majority of small businesses in time to save them from going under.
- In the US, the Small Business Administration (SBA) has more than doubled its funding pool to $50 billion in order to provide support to those businesses affected by the coronavirus. Low-interest loans of up to $2 million are now available for small businesses facing financial difficulty, designed to help them pay debts and cover wages. The government has announced a new relief bill, the Families First Coronavirus Response Act, which requires SMBs to provide temporary paid-leave benefits to those employees affected by the virus. To help small businesses pay for these new mandatory benefits, measures including tax credits and federal payroll-tax relief are being rolled out. Further measures including state-backed loans for small businesses and payroll tax holidays look set to be made available as part of a huge government bailout package over the next few days.
- The government in Singapore has boosted existing subsidies, such as the SMB Working Capital Loan programme, to help small businesses in need of cash and introduced a Job Support Scheme (JSS) to promote staff retention via grants to employers.
- NatWest was the first lender to pledge support for SMBs affected by the outbreak. This included a £5bn Working Capital Support extension to its existing Growth Funding Package, loan repayment holidays, fee-free emergency loans and the provision of consultancy and advice through its NatWest Mentor service.
- HSBC has agreed to offer preferential loan pricing for companies involved in the supply and manufacture of ventilators as well as extended repayment terms on lending and fast track approval times. It has also waived the £100 fee for its small business loans.
- Many major lenders are offering emergency loans for small businesses as part of the government’s CBILS. Some banks however, including Barclays and HSBC, have been criticised for requiring that the loans are backed by personal guarantees, thus reducing their appeal for a huge number of businesses and undermining the impact of the scheme. Meanwhile NatWest has confirmed it will provide the loans without asking business owners for personal guarantees.
Small businesses will get a six-month break from making repayments on their loans under a new coronavirus relief package put together by the government and facilitated by the big banks. Reduced loan rates and fee waivers are also available for small businesses in financial difficulty due to coronavirus.
Major banks, including Bank of America and Citi, have chosen to waive monthly service fees, remote deposit capture charges and penalties for early CD withdrawal for SMB customers. Fifth Third is taking immediate steps to help customers by offering a payment deferral program for up to 90 days, no late fees and a range of loan modification options on a case-by-case basis.
China Citic Bank International is extending 24-month term loans to its small business customers with a promise to approve eligible applications within five days. Borrowers only need to service the interest in the first year, before the principal plus interest repayments kick in from the 13th month. Other lenders, including HSBC and Standard Chartered are waiving fees and letting customers pay only the interest on their loans.
Many digital-only banks have been quick to provide information and support to small businesses in an attempt to lessen the impact of the coronavirus.
Small business lenders Tide and OakNorth, which are not yet eligible to participate in CBILS, have been vocal in their support for small businesses and highlighted the need for governments and lenders to act fast to provide funding. Their approach so far has focused on providing customers with accurate and up-to-date information on developments impacting the small business sector to help them gain quick access to the support necessary to sustain their business. Tide is sharing news, updates and advice for small businesses via its website with a promise to support its members through the crisis.
Monzo has initially responded by giving existing Business Pro customers 3 months for free, and new customers 1 month free. It is also providing updates and information on the Monzo blog about what support is available to small businesses and the self-employed. Customers are being asked to get in touch with Monzo directly to share how the coronavirus is affecting them and what help they will need over the coming months. This will help Monzo tailor their service offering to the needs of the business community.
US digital challenger bank NorthOne is waiving all account fees for at least 3 months for existing and new small business customers in states most affected by the coronavirus (currently WA, NY, and CA) as well as all restaurant and hospitality businesses nationwide.
Non-bank lenders and SMB service providers
Peer-to-peer (P2P) Lenders
P2P lenders have reported a spike in demand for credit as borrowers, including many small businesses, seek loans to tide them over during this period of disruption. However, concerns around liquidity are restricting these platforms from lending as much as they could be to customers.
- Assetz Capital, a marketplace loans provider enabling individuals and companies to lend money directly to small businesses, is one of a number of P2P lenders that has gone to the government seeking liquidity support. If provided, this will allow it to keep lending sustainably to small business customers, even whilst funding from investors dries up due to economic uncertainty and a higher risk of loan defaults.
- Linked Finance, Ireland’s largest P2P lending platform, is offering a “Deferred Start Loan” to provide small businesses in financial difficulty with up to €100k of credit. No interest or capital repayment will be required for the first 3 months to minimise financial pressure on customers.
Digital Service Providers
Digital service providers are working with each other to offer holistic support for small businesses impacted by the virus.
- A group of fintechs including digital lender Trade Ledger; digital credit score provider Wiserfunding; trade credit insurance provider Nimbla, and remote client onboarding platform NorthRow have collaborated via an online lending platform that allows bank and non-bank lenders to provide businesses with credit during the virus outbreak. This includes loans, invoice finance and asset finance, with funds deployed within days as opposed to the weeks it usually takes for small business lenders to onboard and fund new customers.
- Digital lender Kabbage has partnered with US payments infrastructure startup Finix to offer small businesses the ability to sign up to sell online gift certificates to their customers, with revenues deposited into their Kabbage Payments Account as early as the next business day.
- Square is refunding all its software subscription fees for the month of March and has launched a curbside pickup service through Square Online Store to enable businesses to continue to operate via local delivery.
- Big Tech has also stepped in to offer support for small businesses. Facebook is planning to launch a programme to support 30k small businesses across 30 countries with cash grants and advertising credits that are intended to be used for paying overheads and operational costs. This will be supported by virtual training and advice through Facebook’s Business Resource Hub and free Blueprint e-learning platform.
Governments and lenders globally are responding to the intensifying coronavirus crisis with unprecedented financial support for small businesses. However there is a growing fear that funding will not get to those that need it most - or in the time frame needed.
What lenders need to focus on now is to:
- Speed up access to funds. Lenders need to find ways to get government backed loans to customers as quickly as possible. In the UK, 67% of SMBs expect to run out of cash by Easter, according to invoice lender MarketFinance. This means that the CBILs are unlikely to reach businesses in time to save them from failure unless the process is accelerated.
- Follow the intention, not the letter of the law. Those lenders that were asking for personal guarantees for access to CBILS loans in the UK, were quickly pilloried in the press. That will damage their reputations and will result in many customers going elsewhere. Additionally the British Business Bank has made it clear that “primary residential property cannot be taken as security”.
While accepting that governments have a lot of unexpected calls on their time, we need to see a concerted effort now to ensure SMBs survive the immediate uncertainty. That means:
- Getting as many lenders registered for schemes as possible. Digital-only lenders should be made a high priority given their ability to get new products and services up and running fast. They could be vital in getting funds to customers during the very narrow window that exists between now and failure.
The situation is incredibly uncertain, but lenders can take steps to reduce the impact of the coronavirus on small businesses:
- Act fast. There is no time to waste. SMBs lack financial headroom and can’t survive for long without support. Rapid access to credit is absolutely key in helping them to survive the financial implications of the coronavirus crisis.
- Communicate with customers. Get the message out there to small business customers about how they can gain access to available funding. You have a trusted relationship with your customer - this is the time to make full use of it. The right advice will help SMBs to obtain the financial support they need in the time frame needed to survive.
- Prioritise transparency. Support customers in selecting the solution that best suits their needs by providing straightforward advice. Loans won’t be suitable for everyone. By being transparent with customers you can help avoid placing them in further financial difficulty that could worsen as the crisis continues.
- Think digital. Leverage technology wherever possible to speed up and streamline the credit application process and deployment of funds for small businesses. Use digital servicing channels to provide immediate support and virtual training and advice to help customers get back on their feet as they rebuild their businesses for the future.
- Collaborate to offer holistic support. Work with other providers to plug gaps in your service offering and provide end-to-end solutions for SMBs. Be flexible and identify opportunities to tailor products specifically to meet the needs of an underserved small business market at a critical moment.