# Closing the funding gap: How alternative lenders the secret to SME survival in Europe Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2020-09-07 Category: FINANCE Category URL: https://financedigest.com/category/finance Meta Title: The Future of SMEs Post-COVID-19 Crisis: Challenges and Meta Description: Learn how the 2008 financial crisis affected small businesses, the challenges they face today, and why access to funding is crucial for their survival and URL: https://financedigest.com/closing-the-funding-gap-how-alternative-lenders-the-secret-to-sme-survival-in-europehtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/untitled-design-4-1736838853976-compressed.jpg) _By **Scott Donnelly,** Managing Director, CapitalBox_ Costing a shocking 5.7 million jobs, the 2008 financial crisis caused the demise of 1 million small businesses. These businesses have since spent years, rebuilding their brands, staff, value and reputation. Today they find themselves in a situation that might be even worse.  Small and medium [sized businesses](https://www.financedigest.com/covid-19-is-impacting-the-variable-speed-drive-market-size-business-revenue-forecast-leading-competitors-and-growth-trends-2028.html "COVID-19 Is Impacting The Variable Speed Drive Market | Size, Business Revenue Forecast, Leading Competitors And Growth Trends 2028"), the backbone of our society who fuel our working and social lives, are struggling to keep their heads above water. The three-month lockdown has placed [small businesses](https://www.financedigest.com/best-small-business-loans-speaks-to-fundbox.html "Best Small Business Loans Speaks to Fundbox") in great danger and many of them are in need of immediate funding. Despite this, small and medium businesses seem to ever be the optimist with the majority [remaining positive](https://www.financedigest.com/tissue-tapes-market-remains-afloat-amid-covid-19-pandemic-to-surge-positively-projects-fmi-2019-2029.html "Tissue Tapes Market Remains Afloat amid COVID-19 Pandemic, to Surge Positively, Projects FMI 2019 – 2029") about the future. Only 19% of businesses think that the [COVID-19 global pandemic](https://www.financedigest.com/outbreak-of-the-covid-19-pandemic-is-expected-to-severely-affect-the-global-packaging-and-labelling-services-market.html "Outbreak of The COVID-19 Pandemic is Expected To Severely Affect The Global Packaging And Labelling Services Market ") will have a damaging effect this time next year. Optimism, ambition and an entrepreneurial mindset, combined with the right funding will help in bringing that 19% to zero. **The unwelcome recession** 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](https://www.financedigest.com/britain-launches-trade-system-for-developing-countries.html "Britain launches trade system for developing countries"), and are the largest contributors to job creation and global economic development. According to a study by the [World Bank](https://www.financedigest.com/fund-nature-protection-now-or-face-huge-losses-says-world-bank.html "Fund nature protection now or face huge losses, says 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](https://www.financedigest.com/credit-squeeze-biggest-threat-to-economic-outlook-fidelity-international-says.html "Credit squeeze ‘biggest threat’ to economic outlook, Fidelity International says") contraction in 25 years. Over the years, we have relied heavily on SMEs to create [jobs and drag economies](https://www.financedigest.com/younger-chinese-are-spurning-factory-jobs-that-power-the-economy.html "Younger Chinese are spurning factory jobs that power the economy") 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. **Operation fight back; keeping up with the technology of today** During the 2008 recession, [small businesses](https://www.financedigest.com/do-small-businesses-need-branding.html "Do small businesses need branding?") 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](https://www.financedigest.com/twitter-asks-some-laid-off-workers-to-come-back-bloomberg-reports.html "Twitter asks some laid off workers to come back, Bloomberg reports") 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. ![Scott Donnelly](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/scott-donnelly-1736838853647-compressed.jpg) Scott Donnelly Of course, SMEs do present concerns: their creditworthiness is sometimes questioned due to their smaller [balance sheets](https://www.financedigest.com/ecbs-villeroy-lays-out-plan-for-shrinking-balance-sheet.html "ECB’s Villeroy lays out plan for shrinking balance sheet"). However, by now, and after decades of their exuberance and ambition to fightback and tech driven improvements in data analysis and [credit scoring](https://www.financedigest.com/12-things-that-dont-hurt-your-credit-score.html "12 Things That Don’t Hurt Your Credit Score"), you would think old mindsets would change. The pandemic [led to banks](https://www.financedigest.com/building-a-relationship-led-bank-requires-a-more-human-touch.html "Building a relationship led bank requires a more human touch") 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](https://www.financedigest.com/uk-launches-270-million-pound-fund-to-support-green-heating-technology.html "UK launches 270 million pound fund to support green heating technology"), 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](https://www.financedigest.com/coronavirus-how-american-business-have-adapted-to-the-new-normal.html "Coronavirus: How American Business Have Adapted to the New Normal") 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](https://www.financedigest.com/transforming-insurance-through-artificial-intelligence-and-machine-learning.html "Transforming Insurance Through Artificial Intelligence and Machine Learning") to make better decisions. [**Fintech vs traditional banking**](https://www.financedigest.com/digital-banking-traditional-banks-vs-fintech-providers.html "Digital banking: Traditional banks vs. fintech providers") [Alternative lending has been a go-to substitute for financing SMEs](https://www.financedigest.com/putting-smes-first-the-alternative-to-the-overdraft.html "Putting SMEs first: the alternative to the overdraft") 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](https://www.financedigest.com/how-fintech-innovations-can-change-our-tomorrow.html "How fintech innovations can change our tomorrow") offering this type of lending.  The ability to leverage the [latest technology](https://www.financedigest.com/cardiac-valvulotome-market-growth-latest-trends-top-players-competition-technological-advancements-outlook-and-forecast-2028.html "Cardiac Valvulotome Market Growth, Latest Trends, Top Players, Competition, Technological Advancements, Outlook and Forecast 2028") 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](https://www.financedigest.com/uk-watchdog-contacts-banks-following-huge-withdrawal-of-mortgage-deals-ft.html "UK watchdog contacts banks following huge withdrawal of mortgage deals -FT") 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. **Please [mind the gap](https://www.financedigest.com/minding-the-gap-the-importance-of-inclusive-financial-strategies-as-digital-currencies-rise.html "Minding The Gap: The importance of inclusive financial strategies as digital currencies rise ") between banks and SMEs** The pandemic has changed the [way companies do business](https://www.financedigest.com/five-ways-businesses-can-prepare-themselves-for-the-digital-economy-be-kaler-pilgrim.html "Five ways businesses can prepare themselves for the digital economy – Be Kaler Pilgrim") 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’](https://www.financedigest.com/how-banks-can-triumph-in-the-new-normal.html "HOW BANKS CAN TRIUMPH IN THE ‘NEW NORMAL’") today where customers expect fast interactions and support via a variety of channels. [Customer expectations](https://www.financedigest.com/banking-from-anywhere-embracing-technology-to-exceed-customer-expectations.html "Banking from anywhere: embracing technology to exceed 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](https://www.financedigest.com/sas-bridge-financing-keeps-survival-hopes-airborne-shares-climb.html "SAS bridge financing keeps survival hopes airborne, shares climb"). It is [time for alternative lenders to close the funding](https://www.financedigest.com/female-founders-still-struggle-to-get-funded-time-to-rip-up-the-old-rulebook.html "Female Founders Still Struggle to Get Funded: Time To Rip Up The Old Rulebook") gap before it is too late. Operations such as quicker processing and approval times, [turned around](https://www.financedigest.com/can-crowdfunded-property-turn-rundown-neighborhoods-around.html "Can crowdfunded property turn rundown neighborhoods around?") within 48 hours, can ensure that SMEs across Europe can carry on scaling their business. As we wade our way through the worst recession on record, [small businesses must put their confidence](https://www.financedigest.com/is-spring-really-in-the-air-heightened-consumer-confidence-may-not-be-enough-this-season-for-small-businesses.html "Is Spring Really in the Air? Heightened Consumer Confidence May Not Be Enough This Season for Small Businesses") into the right type of lenders to achieve success. After all, the stakes are high. Renowned for agility, toughness and flexibility SMEs are like no other and are therefore the perfect candidate to [overcome this challenge](https://www.financedigest.com/overcoming-challenges-faced-in-business-from-one-woman-to-another.html "Overcoming challenges faced in business: from one woman to another"). Now more than ever we must [join forces to support European](https://www.financedigest.com/more-banks-join-european-instant-payments-pilot-from-end-2023.html "More banks join European instant payments pilot from end 2023") SMEs and subsequent economies in light of the unstable surroundings we live in today. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---