2020 was a crazy year
There is no need to belabor the point with superlatives. However, some usage data from across the JUDI platform is quite interesting:
- In April 2020, (as the economy was grinding to a halt and small business lending was being nationalised in both Canada and the US), application volumes fell by 75%, to 25% of pre-pandemic levels.
- They “recovered” through the summer to approximately 40% of pre-pandemic levels, and have bounced to 60% through the fall and end of year.
- Pre-pandemic approval/funding rates were approximately 50%, and they dipped as low as 15% before settling around 30% in the fall.
So, following the math – the market (using the JUDI platform as a proxy) ended the year funding (run rate) approximately 35% of the number of SMB loans compared to pre-pandemic levels.
2021 presents a once-in-a-generation opportunity
How often does 65% of the market come up for grabs?
While we are still on shaky ground, in general the consensus is that there is light at the end of the macro-economic tunnel. As we vaccinate society’s most vulnerable, partial re-openings will begin to occur, followed by full re-openings and more normal economic activity.
Simultaneously, the nationalisation of small business lending will recede and market lenders will need to step back into their old shoes at the very least. But those old shoes will feel different – lenders may be forced to burn those shoes and carve out a whole new digital frontier to meet the moment.
Demand is coming.
The opportunity isn’t for the faint of heart
Some sectors will need courageous support to survive a longer journey back to normality. Some sectors have pivoted their thinking and defined a “new normal” involving big digital shifts (and new costs and digital investment) to meet emerging customer needs. In other sectors, pent up demand driven by cabin fever and increased savings rates could arguably drive record performance at some point not too far out.
Lenders will need to chin themselves to support small businesses along the spectrum. Lenders that do so stand to gain market share and new relationships, and to strengthen existing ones.
In most cases capital will be needed quickly, in real-time and on terms that give borrowers a fair chance. Providing solutions to “meet the moment” will require new data sources and new technology solutions, and to some extent, a new digital mindset.
Check back in next week as we discuss the application of Artificial Intelligence to small business lending.