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Mind the Gap; Alternative lenders become beacon of hope for SME community

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Mind the Gap; Alternative lenders become beacon of hope for SME community 1

By Scott Donnelly, Managing Director, CapitalBox

The 2008 recession hit small and medium enterprises the hardest. Fewer businesses were founded, many had to lay off their staff and others didn’t make it through. Funding conditions were unfavourable but years later, small businesses could see the light at the end of the tunnel with better economic conditions favouring their turnaround.

We are however back in a situation today where small businesses are fighting for their survival. The Great Lockdown means that a fifth of small businesses are at risk of collapsing.

Access to financing for small and medium businesses has never been more critical.

The Great Lockdown

Small and medium sized enterprises, more commonly known to you and me as SMEs, are responsible for more than two thirds of all jobs worldwide. They have over the last two decades become the beacon of innovation, boosting economies across the world in particular in developing countries, and are the largest contributors to job creation and global economic development.

According to a study by the World Bank, prior to the pandemic 600 million was the number of estimated jobs needed by 2030 to absorb the growing global workforce, and who was expected to pick up the bill? SMEs.

From ‘The Great Recession’ to ‘The Great Lockdown’, here they are again, caught up in the height of the worst recession on record – with the likes of Italy, Spain, France and the UK shrinking in the last week by double digits, the biggest economic contraction in 25 years.

Over the years, we have relied heavily on SMEs to create jobs and drag economies out of recessions and crisis. This time should be no different – as long as they have the right access to finance and a strong liquidity backing.

Traditional funding can’t keep up

During the 2008 recession, small businesses didn’t create jobs; they lost them. With a decline of around 60% from pre-recession, small businesses managed to show-off their resilient nature and come back fighting, creating almost 62% of jobs a decade later.

You would assume that big, and smaller, banks would be looking to fund these enterprises all the way to stardom. Backing them from inception to scale up. This isn’t the case. In fact, it is the complete opposite.

Of course, SMEs do present concerns: their creditworthiness is sometimes questioned due to their smaller balance sheets. However, by now, and after decades of their exuberance and ambition to fightback and tech driven improvements in data analysis and credit scoring, you would think old mindsets would change.

The pandemic led to banks locking up their lending altogether. A repetition of 2008 when lending virtually came to a standstill and didn’t pick up for years after. They were no champions of the SME cause.

During the pandemic governments around the world provided support funds, furlough schemes and business rate reliefs. These are however short-term solutions which don’t help longer term case flow issues.

In the UK, the Coronavirus Business Interruption Loan Scheme, which only opened up to SMEs at the end of July, relies heavily on lenders to provide support to those in need as companies started to reopen and restart their operations. Financing needs to come from providers who understand the specific needs of SMEs – with a flexible approach, quick turnaround times, and who can leverage technology and machine learning to make better decisions.

Future of financing is an alternative option

Alternative lending has been a go-to substitute for financing SMEs for the past several years. This avenue of funding differs from traditional banks and is typically more flexible, faster and has a higher approval rate.

Traditional banks are struggling to keep up with the arrival of fintech innovators offering this type of lending.  The ability to leverage the latest technology without the hindrance of legacy systems and organizations has allowed fintech companies to move quickly and efficiently into the gaps left unserved by conventional banks.

CapitalBox, for example, was founded based on the premise of financing the underserved micro SME segment – under 10 employees, which comprises of 90% of SMEs in Europe. Being innovative, not following rigid and legacy bank policies, and heavily digitising the business, has enabled us to fund thousands of SMEs across Europe.

This is the time for alternative lenders to shine and be the catalyst for economic recovery once again. The pandemic allowed us to bring to the forefront the need to adapt quickly using technology. We are able to change our scoring algorithms and processes to deal with the crisis and continue to serve, albeit at lower volumes, the companies not being served by conventional banks.

Keeping up with the customer

The pandemic has changed the way companies do business and many of them have been forced to speed up transformation plans.

The same goes for those providing finance to the SME community – from legacy banks to the more modern fintech, we have a ‘new normal’ today where customers expect fast interactions and support via a variety of channels

Customer expectations will never return to what they were before COVID-19 hit, and this goes for financial institutions too. It is clear that traditional loan processes are not able to keep up with the fundraising experience that SMEs are now looking for and need to survive.

It is down to alternative lenders to fill the gap – quicker processes with turnarounds of 48 hours so that SMEs across Europe can once again play a huge role in our economic recoveries.

There is a huge uphill battle ahead of us as we go through the worst recession on record but through partnering with the right type of lender, it will be possible to achieve it.

SMEs are renowned for their resiliency and agility. They have overcome hurdles like no other and with the ability to adapt to strenuous circumstances, they truly are the backbone of our economies across Europe. They now need all our support.

Finance

Sterling gets vaccine boost to hit 8-month high vs euro

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Sterling gets vaccine boost to hit 8-month high vs euro 2

By Joice Alves

(Reuters) – Sterling rose to a fresh eight-month high against the euro on Wednesday as Britain’s faster COVID-19 vaccine rollout than in the European Union offered support to the pound.

Although Britain’s deaths from the coronavirus pandemic passed 100,000 on Tuesday, its faster initial vaccine rollout has fuelled hopes for economic recovery.

Sterling was up 0.3% at 88.28 pence at 1049 GMT, after hitting a fresh eight-month high of against the single market currency.

Graphic: Sterling 27 Jan, https://fingfx.thomsonreuters.com/gfx/mkt/jbyvrnbbbve/Sterling%2027%20Jan.png

Geoffrey Yu, senior EMEA market strategist at BNY Mellon, said “the general theme of UK doing well with vaccinations is playing a role” in lifting the pound, which is “not expensive and not over-owned yet”.

On the other hand, “the euro is clearly being undermined by ongoing concerns over vaccine rollout speed and supply,” Yu added.

Versus the greenback, sterling was flat at $1.3736, not far off a May 2018 high of $1.3759 touched earlier.

Hopes for a large U.S. fiscal stimulus package has fuelled risk sentiment in markets in recent weeks, benefiting sterling. Market participants are expecting Federal Reserve Chair Jerome Powell to renew a commitment to ultra-easy policy.

“It’s FOMC today so the adjustment in dollar positions may be playing a role as well,” Yu said.

As Britain left the bloc in December, the City of London said the capital’s loss of some financial business due to Brexit has not been catastrophic and it will thrive even if the European Union “irrationally” blocks access.

“For now Sterling continues to trade more on hope, vaccines, than current reality,” said Jeremy Stretch, head of G10 FX Strategy at CIBC Capital Markets.

(Reporting by Joice Alves in VARESE, Italy. Editing by Alexander Smith and Andrew Cawthorne)

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Dollar advances as investors shy away from risk

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Dollar advances as investors shy away from risk 3

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – The dollar edged higher against a basket of currencies on Monday, as a burst of volatility in stock markets around the globe sapped investors’ appetite for riskier currencies.

Concerns over the timing and size of additional U.S. fiscal stimulus sent major U.S. stock indexes briefly more than 1% lower before they recovered to trade little changed on the day.

The sharp move in stock markets soured FX traders’ appetite for risk, Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto, said.

“Your high beta currencies – currencies that are highly correlated with equity markets and global risk appetites – are tumbling in synchrony with equity indexes,” Schamotta said.

Market sentiment turned more cautious at the end of last week as European economic data showed that lockdown restrictions to limit the spread of the coronavirus hurt business activity.

The U.S. Dollar Currency Index was 0.19% higher at 90.396, after rising as high as 90.523, its strongest since Jan. 20.

The euro was down around 0.28% against the dollar. German business morale slumped to a six-month low in January as a second wave of COVID-19 halted a recovery in Europe’s largest economy, which will stagnate in the first quarter, the Ifo economic institute said on Monday.

The Australian dollar – seen as a liquid proxy for risk – was 0.16% lower against the dollar.

U.S. stocks have scaled new highs in recent sessions even as concerns about the pandemic-hit economy remain. Investors are trying to gauge whether officials in U.S. President Joe Biden’s administration could head off Republican concerns that his $1.9 trillion pandemic relief proposal was too expensive.

Despite the dollar’s recent rebound – the dollar index is up about 1.3% since early January – analysts expect a broad dollar decline during 2021. The net speculative short position on the dollar grew to its largest in 10 years in the week to Jan. 19, according to weekly futures data from CFTC released on Friday.

The U.S. Federal Reserve meets on Wednesday and Chair Jerome Powell is expected to signal that he has no plans to wind back the Fed’s massive stimulus any time soon – news which could push the dollar down further.

Sterling strengthened on Monday against the weaker euro as Britain’s COVID-19 vaccine rollout over the weekend offered support to the British currency.

(Reporting by Saqib Iqbal Ahmed; Editing by Andrea Ricci and Sonya Hepinstall)

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London and New York financial services treated the same, EU says

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London and New York financial services treated the same, EU says 4

By Huw Jones

LONDON (Reuters) – An EU forum for discussing financial services with Britain will be similar to what the United States has, and it must be in place before market access will be considered, the bloc’s financial services chief said on Monday.

Britain’s Brexit trade deal with the EU from Jan. 1 does not cover financial services, leaving its City of London financial center largely cut off from the EU.

Both sides are committed to creating a forum for financial regulatory cooperation by March, but talks have not started yet, the EU financial services commissioner told the European Parliament.

“What we envisage for this framework is similar to what we have with the United States, a voluntary structure to compare regulatory initiatives, exchange views on international developments and discuss equivalence related issues,” Mairead McGuinness told the European Parliament.

U.S. and EU regulators took about four years just to agree on rules on cross-border derivatives.

Trading in euro shares has already left London, along with a chunk in swaps trading. That questions the value of any future EU access given that many banks and trading platforms from the UK have opened units in the bloc.

McGuinness said regulatory cooperation will not be about restoring market access that Britain has lost, nor will it constrain the EU’s unilateral equivalence process.

Equivalence refers to EU access when Brussels deems a non-EU country’s rules are similar enough to the bloc’s.

“Once we agree on our working arrangements, we can turn to resuming our unilateral equivalence assessments… using the same criteria as with all third countries, including anti-money laundering and taxation cooperation,” she said.

Britain plans to amend some EU rules.

“The United Kingdom intention to diverge requires a case-by-case discussion in each area. Equivalence and divergence are polar opposites,” McGuinness said.

“I am optimistic that over time, through cooperation and trust, we will build a stable and balanced relationship with our UK friends.”

(Reporting by Huw Jones; Editing by Dan Grebler)

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