There is nothing more destructive than the operational turbulence caused by a weak balance sheet. Quickly, the business’ talent and customers migrate to more secure and consistent operators leaving behind the ugly combination of high customer churn, staff turnover and restless suppliers.Post lock-down, the availability of capital will be influenced by two opposing themes.
On the one hand, capital is going to be difficult to come by as investors retreat to lower risk assets. This issue will be exacerbated by high demand from the business sector for new capital.
On the other hand, many investors will be keen to repair the damage on their own income. For them, the yields offered in the listed markets will quickly become unattractive.
Beyond the summer, this will likely bring a strong flow of capital to SMEs via various established and regulated peer-to-peer lending platforms, boosted further by government support.
Post COVID19, the big advantage of this loan capital will be the focus on income, with investors less concerned about participating in the equity of the borrower.
Interest rates will be high compared to current bank rates. The SMEs that obtain it, however, will gain a significant competitive advantage and be in a strong position to purchase cheap assets during the downturn.
Rising to the Challenge
Investors will be selective in where they invest, attracted to SMEs with a good customer base, recovering revenues and, pre COVID19, a consistency in the flow of these revenues.
They can be expected to favour SMEs with good quality, modern processes, seeing them as being more transparent and significantly less risky.