The Tragedy of SME Growth

I’ve long argued that Covid didn’t suppress demand, just the ability to supply goods and services, and that businesses who saw it through and emerged, would do so into a growth environment. Growth can be a double-edged sword though; businesses require the cashflow financing increased working capital requirements will demand.  

Cashflow financing to SMEs, however, is widely underserved. Sadly, the ‘demand present and rising, but supply short’ dynamic in Covid is often paralleled in SME lending.

This is because SME lending doesn’t have the sheer brute size of Corporate Lending deals, nor does it have the homogeneity and susceptibility to the laws of large numbers that Personal Lending does. It doesn’t fit.  

And when it comes to lending for growth, traditional affordability models place reliance on historical data, which simply just isn’t what it used to be.

Consider growth in the post Covid world:  

• Small businesses will not be in the same position exiting Covid as during, or before, the pandemic
• The direction and quantum of those differences will vary, not just by sector, but by sub sector
• On top of that, the challenges presented by supply side inflation are going to be different again to those of a pre-Covid world

Add in another key emergent dynamic, driven by Covid, the digital economy and business models; digital first businesses, gig workers, creators, freelance and remote working.

All of this breaks traditional modelling. Which didn’t serve them well in the first place.

So much SME lending is done on a decades old basis. Abel aims to change that.

At Abel we’ve solved the tragedy of growth by taking a forward-looking approach to decisioning, overlaying future looking growth scenarios on top of historic cashflows to decide whether a business tomorrow can afford repayments.

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UK plc, in the form of small and medium sized companies, is emerging from Covid, but doing so into an environment challenged by increasing costs. Growth, particularly in an inflationary environment, requires cashflow financing for working capital; something that is sorely under provided to UK SMEs today.  

The Barclays SME Barometer shows:

UK small and medium sized businesses (SMEs) report revenues increased by 11.4 per cent on average in Q2 this year against the same period in 2021 with more than half (54 per cent) expecting turnovers to increase further by the end of Q3

While … … fear(ing) the impact of recession, 83 per cent of SMEs are neutral (45 per cent) or optimistic (38 per cent) about their own business’ prospects

Growth is expected. It will require support.

For more information visit our website here.

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