Financial Inclusion for SMEs

Small and Medium-sized Enterprises (SMEs) comprise over 99% of businesses in the UK and are instrumental in employment and economy growth. However, one of the persistent problems for small and growing businesses is access to proper and timely finance.

Traditional high street banks are conventionally bound by stringent lending parameters and risk aversion. They too often leave a significant segment of the SME market underbanked. That is where alternative lenders like us step in, playing a crucial role in sustaining business resilience, particularly in the wake of deep economic shocks.

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Bank-Rejected or Underbanked SMEs: Lending--A Flexible Strategy

One of the fundamental tenets of our work towards financial inclusion is our deliberate targeting of SMEs that cannot access capital from conventional funding. These generally consist of businesses with:

1.       Irregular cashflow: Many SMEs, especially those with seasonal enterprises or unpredictable project-based income, do not qualify for the predictable revenue streams that conventional banks are looking for.

2.       None or low profits: Start-ups or business which are in a period of significant investment and growth may not yet be consistently profitable. They can therefore pose a higher perceived risk to established lenders.

3.       Thin credit files: New businesses or those which have not extensively used traditional credit facilities can have thin credit records. This may inhibit them from being able to demonstrate creditworthiness in the familiar manner.

4.       Imminent working capital needs: Traditional loan application procedures can be time-consuming. This can be inappropriate for firms that require speedy access to small business loans to finance short-term liquidity, payroll shortfalls, or to capture a short-term opportunity.

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A new way of supporting SMEs with finance

We differ to the banks by employing agile underwriting and next-gen credit scoring techniques that outperform conventional ones. In contrast to being solely based on past profits or asset-related collateral, our risk model depends on:

1.       Real-timebank feeds: This provides a dynamic and real-time picture of the current financial situation and cashflow of a business, enabling more savvy and responsive lending decisions.

2.       Cashflow-based analysis: By placing greater emphasis on a business's ability to generate cash and service debt out of its underlying operations, we are better able to assess risk in a more holistic way. We can unlock the potential for businesses that have good underlying strengths but unorthodox financial histories.

3.       Behavioural and ESG factors (emerging): Future incorporation of these factors foretells a progressive mindset. The way a business conducts itself and maintains environmental, social, and governance matters may indicate a better ability to survive in the long term. This again widens the scope of financial inclusion, possibly leaning towards women-owned businesses and companies with high ethical orientations.

Such flexible and forward-looking approach allows us to offer fast, affordable cashflow loans up to £400,000. Decision-making is typically completed within 24 hours, thus directly addressing the urgent and varied needs of under-banked SMEs.

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Role in UK Business Recovery After COVID: An Essential Safety Net

The COVID-19 pandemic presented unprecedented challenges for UK businesses due to widespread liquidity crises and supply chain disruptions. While schemes like CBILS and BBLS that were endorsed by the government provided considerable support, many SMEs were excluded either due to stringent eligibility criteria or a lack of awareness. Swishfund emerged as a critical alternative filling this gap and has contributed significantly towards the nation's business recovery.

By and after the pandemic, we expanded its lending volumes aggressively, providing vital short-term liquidity for payroll shortfalls, supply chain disruption and general working capital requirements. We doubled our volumes of lending during 2020 and 2021, showing a forward-looking attitude towards covering struggling businesses

Our involvement extends beyond lending. Our involvement in SME advocacy in Parliament, presenting evidence to investigations into access to lending and post-pandemic funding, evidences our commitment to creating amore inclusive financial environment at a policy level. This involvement emphasizes the need to understand that systemic issues require joint solutions, with all lenders playing a major role in policy formulation.

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Strategic Influence on Financial Inclusion: A Multi-Faceted Contribution

Our contribution to financial inclusion varies in many essential and effective areas:

1.       Speed & Accessibility: Through fast lending to SMEs with urgent cashflow needs, we make it possible for small businesses to react in time to market disruptions or unexpected setbacks, preventing impending collapses by reason of the lack of timely capital.

2.       Credit Flexibility: Our liberal nature to lend to entrepreneurs often rejected by traditional banks opens up more small businesses eligible to get funding. We take a pragmatic approach to CCJs and historic insolvencies, giving reasons for all our decisions (and being open to be challenged on those reasons).

3.       Economic Revival: Providing working capital bridge finance, particularly post-COVID, played a vital role in helping numerous SMEs revive, sustaining employment and facilitating economic stability at large.

4.       Lending Diversity: With a strong intention to finance more women-led and ESG-aligned business ventures, we are actively working towards eradicating systemic prejudices and fostering more inclusive financing. This conscious focus on diversified borrower profiles is critical to drive truly inclusive growth.

5.       Policy Engagement: Our active involvement with Members of Parliament to shape inclusive lending models demonstrates a concern for systemic change, advocating for policies that enable a broader spectrum of businesses and fairer access to finance.

By embracing new models of lending, providing rapid and flexible access to capital, and proactively championing a more inclusive financial marketplace, we are not merely extending credit but are acting as a crucial facilitator for firms that can otherwise get left behind.In the post-pandemic world, the contribution of alternative business finance lenders like Swishfund has never been so crucial in keeping the health and diversity of the UK SME sector on track.