Pulse Cashflow on Post-Pandemic Bill Funding

The small business finance market occupies a unique position: despite market volatility and an economic downturn, the availability of finance remains strong for SMEs thanks to government funding initiatives.

In the UK, one of the biggest aid programs is the Bounce Back Loan Scheme (BBLS), which has facilitated more than $ 53 billion in financing to SMEs, according to the most recent statistics from HM Treasury.

“For the first time in my life, UK businesses are spoiled for choice in terms of the financing available to them,” said Toni Dare, founder and CEO of finance technology company Pulse Cashflow Finance Ltd. invoices

Speaking to PYMNTS, Dare explored how this increase in the availability of finance has affected the alternative finance market, and what lies ahead for FinTechs as government funding programs eventually run out.

The ebb and flow of funding

In the aftermath of the 2008 global financial crisis, new FinTechs emerged to facilitate various forms of financing for small businesses as traditional banks withdrew from the market. As the world is in dire economic straits again, this time around bank lending has remained strong thanks to government programs.

For a bill funder like Pulse Cashflow, the impact of these programs has been clear. Dare pointed to statistics from UK Finance which revealed a drop in the number of companies seeking invoice financing “for the first time in many, many years,” she said. Indeed, a UK Finance analysis released in July found that a combination of government-guaranteed loan programs and declining B2B trading volumes each contributed to a drop in demand for invoice financing.

But this trend is just part of the ebb and flow of the market, according to Dare.

“BBLS funds are used by directors, owners and managers to support their businesses to ensure they survive the crisis. Making sure their business is still there when we go out to the other side is the most important thing on their minds, ”she said. “However, these funds are and will continue to be depleted over time, and we will begin to see a resurgence in demand for cash flow financing to help businesses take advantage of opportunities as they arise.”

Signs of public funding drying up are already appearing: Earlier this week, reports revealed that UK challenger bank Tide was running out of funding for small businesses after pulling out of BBLS.

An industry-specific approach

In anticipation of a return in demand for alternative financing solutions like invoice financing, companies like Pulse Cashflow have the opportunity to propel the recovery and resilience of small and medium businesses.

Dare noted that one way to do this effectively is to take an industry-specific approach to funding.

“Many industries have a higher propensity to use invoice financing,” she explained. “Sectors where credit terms are long or where there are inherent late payment problems” are particularly well placed to benefit from invoice financing.

Entities in the distribution and logistics sector operate at low margins thanks to high up-front costs such as drivers, fuel and vehicle maintenance. However, these companies do not invoice until the end of the month, which adds an additional delay to their capital inflows. Dare offered another example from the construction industry, where cash flow can be a headache due to the use of contractual arrangements and installment payments.

Bill financing is just one of the growing types of alternative financing that will play an important role in keeping small and medium-sized businesses in business even after the economic recovery begins. While government funded SME finance programs provide much needed relief, they are only temporary solutions.

However, the SME finance arena will not look like it was in a post-pandemic market. While an ecosystem made up of both traditional and alternative financing methods will persist, Dare predicted some changes in the composition of the market as well as in the integration process that will evolve due to increased digitization.

“By the end of this crisis, you may see a reduction in the number of funders in the market, as some consolidation will inevitably occur,” she said. “I don’t see any change in traditional or alternative forms of financing to support businesses in the future. What will change is the process of signing new transactions. We have become accustomed to increased use of technology, which will not go back. “

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