Demand for SME finance rises but access may be more difficult
Demand for small- and medium-sized enterprise (SME) loans is rising amid a challenging economic environment but it may be a struggle for some firms to secure finance as lenders become more strict in their assessments.
“The demand for loans is there as we are seeing SMEs having more liquidity concerns, whether it’s related to the economic environment or higher costs related to energy prices,” said Chirag Shah, chief executive and co-founder of alternative business lender Nucleus Commercial Finance.
Read more: Business insolvencies increase amid spiralling inflation
Shah said he is expecting insolvencies to rise, which have already increased compared to pre-pandemic levels. However, he believes they will be in line with the group’s projections and already priced in to its lending.
“A lot of the liquidity is going into servicing loans that businesses got during the Covid period,” he said. “Leverage in the system is higher than before, though in certain sectors it’s more than others. Generally the data we are seeing shows that stress is building up in the construction sector.”
In addition, rising interest rates could make it harder for businesses to service existing loans, although Shah said he doesn’t expect it to have a very material impact on businesses it lends to.
Read more: Opportunity for P2P as banks cool on lending
Peer-to-peer business lending platforms have already tightened their underwriting processes to reflect the deteriorating economic environment.
Rebuildingsociety said earlier this month that it has significantly amended its credit risk processes to account for current risks affecting businesses.
Meanwhile, HNW Lending chief executive Ben Shaw told Peer2Peer Finance News last month that his platform had become more prudent over the last year in its loan selection, to avoid offering loans that might default.