It’s unclear how the lockdown is impacting SMEs credit ratings, especially those businesses that had to rely on government support. If we stick to the pre-lockdown credit models, higher leverage will certainly have an adverse impact on SME credit scores.
What about the post lockdown “revenge spend“? when all the pent-up savers are released into the world to rub shoulders at restaurants, clubs, pubs etc.
The service industry will certainly need additional financial support to quickly ramp-up operations and capture the expected spike in demand, but will the lenders be ready with a forward-thinking view and capitalise on this opportunity or be too busy looking at the 2020 data in the rearview mirror.
We saw this when the government supported loans were introduced in early 2020. The response by banks was phenomenal, but from a SMEs perspective, it could have been faster. Some would argue – A lot faster.
With the infection rates on the decline and a wider rollout of the vaccines that gets wider by the week, are lenders ready to support SMEs for the “Summer of Spend“? There are two challenges here:
- Credit score firms: how are they reflecting the 2020 lockdown data in their SME credit score models. Credit rating firms will have to be very transparent in their approach for firms that rely on this data;
- Lenders: how they are adjusting their reliance on SME credit scores (will need to understand how/if the credit scores are accounting for 2020 data) + leverage ratios in their modelling.
I would encourage lenders to start thinking through their modelling as we head into the summer months to be ready to capitalise on the growth opportunity that’s coming in the second half of this year.
I have been doing some thinking on this topic and would love to bounce ideas with folks working at lenders and credit score firms. If you fancy a chat, drop me a DM.