Small businesses globally are experiencing a serious credit crunch from COVID-19 lockdowns. Many small- and medium-sized businesses sit on little, if any, cash reserves, and some have already lost most of their revenue, but they still have to pay their bills, maintain their supply chain, compensate their employees, and repay their debts. Millions of businesses will go bust without immediate access to liquidity.

In Australia, two-thirds of businesses across all sectors have reported a hit to revenue or cash flow due to COVID-19.

Governments across the globe have announced stimulus packages to help businesses and households address the economic fallout from COVID-19. Incumbent lenders have also stepped up and responded with a series of financial relief programs, including loan repayment relief, interest rate reductions, and merchant terminal relief. Many are also participating in governments’ rescue loan schemes.

The strain on the banking system is immense, however. Lenders are struggling to underwrite and disburse these loans at speed to give small businesses the access to the working capital that they desperately need.

Whether small businesses survive in the next few months depends on how quickly lenders:

  • Help borrowers access the government’s stimulus packages. While hundreds of millions of dollars of loans have already been approved in Australia, this is a fraction of the A$40 billion of loans that the government is supporting. It’s not easy for small businesses to look for these loans online; borrowers are only able to complete an online inquiry form with most banks and wait to be contacted by their banks.
  • Transform credit underwriting systems and processes. Many lenders don’t have the capabilities to originate small business loans end to end and digitally. Lenders must use a variety of data sources, including everyday transactions, revenue sources, invoices, bill payments, and even social media data, to determine credit worthiness and build a more complete picture of the health of the individual business and not rely on just financial statements and cash flow predictions, not to mention feeding this data into the credit models, as well as leveraging advanced analytics and machine-learning algorithms to automate the credit underwriting process.

Read about how lenders must step up in Australia here and what’s happening in Europe here, or set up an inquiry.

*Upcoming research announcement* — I’ll be kicking off a new global research stream on transforming the small business lending experience, including loan origination, onboarding, and collections. If you’re a lender (bank, nonbank, or fintech) that has created innovative solutions or amazing experiences in this space, get in touch with me or Seles Sebastin.