A number of governments and central banks around the globe have launched facilities to provide concessionary loans and guarantees to small businesses, a critical backbone for local economies. Small business owners are experiencing an unprecedented revenue shock as activity has ground to a halt. The US and UK alone have pledged nearly $1 trillion in assistance to small businesses.
However, when it comes to providing this type of short-term crisis loans, the time it takes a business to access the loan matters as much as the amount, if not more. Speed is essential, and not just for businesses running out of cash. For many small business owners, these loans are unlikely to be sufficient on their own. The visibility in state-backed funding allows them to determine the amount they will need from other sources including equity and debt investors. In a world where liquidity is scarce, the delay of a few weeks in tapping investors may be the difference between having the cash to survive or having to close up shop.
Tech-led solutions offer remarkable examples of what’s possible. Last week one of our portfolio companies, domiciled in Switzerland, applied for an interest-free loan under the state-guaranteed COVID-19 bridging credit facility. The management team submitted their application at 8 p.m. and received the requested loan amount at 8:30 p.m. — just 30 minutes later. The application was fully digitized and required only basic information and revenue estimates. No additional documents were needed.
3 Takeaways for Faster Small Business Relief
It is of course easier for a rich, smaller country like Switzerland, where small businesses are banked and digitally savvy, to move quickly. Nevertheless, a few lessons apply broadly as policymakers in more countries design these types of crisis loan programs for small businesses.
1. Use effective transmission mechanisms to channel state support. Ideally, work with banks that have existing relationships with the borrowers. Digital SME lenders, which tend to be nimbler than banks, can also be included.
2. Make it easy to apply. Ask only for information that is absolutely necessary and allow it to be provided digitally. Entrepreneurs are already under extraordinary stress and will welcome straightforward processes.
3. Adopt turnaround time per loan as one of the core indicators of the success of such schemes. Track it alongside the number and quantum of loans issued. Only when everyone in the system understands the importance of moving fast can we expect to make a concerted push for it.
Over the past few years, a number of emerging markets have made investments to digitize the financial system and make it faster, safer, and cheaper to use. India, for example, created a unique digital identity regime, allowing this foundational identity system to be used for electronic Know-Your-Customer requirements. Built with an open-architecture, real-time framework which connects any-to-any financial accounts, it provides a base for rapid action. The Swiss small business support program shows the way to leverage these types of investments as we mitigate the economic fallout from the current pandemic crisis.