Is the Alternative Lending Industry on the Edge of a Total Shutdown? Become’s Insights Point in That Direction

The list of industries that alternative lenders are no longer able to fund is growing longer by the day. Become has always been about transparency, but we realized it is now more important than ever to keep you as business owners informed of what is really happening in the lending world. This led us to the creation of our “Covid-19 business loan updates” – intended to support business owners in this time and keep them well informed. Here, we’ll be closely watching the news and updating on everything business and loan-related so that the community is not left in the dark.  

Coronavirus threatens more than just our physical health, but the very heart of the economy and the lenders that keep businesses alive. Lenders are assuming a huge credit risk with every business they fund. Unless business owners can provide evidence of a stable income not just monthly, but daily, there’s a very low chance of them being funded during this time of uncertainty.

With defaults set to sky-rocket and huge over-heads, lenders will be forced to make tough decisions and not only tighten lending constraints, but possibly stop lending altogether.

One of our partners Funding Circle have already cut over 100 jobs and without naming names, two of our lenders have already notified us that they will be closing. One of our other big lenders are even freezing Line of Credit’s for their customers. With over 50 lenders (currently) available through the Become platform, we are in a position to paint a realistic picture, and sadly it’s dire. 

Become took a deep-dive into its data focusing on business loan demand (measured via loan applications) to see how the Corona pandemic has affected the lending industry and led to industry restrictions. Results showed that the last two weeks, and particularly over the last seven days, there has been a drastic increase in the need for funds. Applications went through the roof with businesses from all walks of life trying to secure funds for the black hole, or rather “The Black Swan” we are entering. 

As the demand for business funds increases at unprecedented rates, the approval rates are simultaneously nose-diving as lenders tighten their approval criteria. The two are in a tragic battle. 

Everyone’s feeling the stress right now so please don’t think we are just being alarmist.  Our data is driving our opinion- and it pains us to say this is very good at putting emotion but it’s not a matter of if, but when the industry will come to a grinding halt. 

One by one, more and more industries are being short-listed by lenders with grim likelihoods of being approved for business funding. First it was travel agencies and restaurants, then The Code of Federal Regulations went on to place restrictions on social gatherings, nightclubs, hotels and events. Only those businesses with high agility, creativity and more importantly, a move toward a strong online presence will survive.

Within the last week alone, Become data shows that 12 industries have been almost totally restricted from receiving funding (note that there are some instances of funding, but as a whole, business loan approval likelihood is extraordinarily low at the current time) – refer to the graph below. 

Don’t miss hidden opportunities

Coronavirus is proving to be “The Black Swan” of the decade – an event described by Nissim Taleb as a rare and unpredictable event that has a dramatic effect on our lives. He advocates for a “black swan robust” society, that is, a society that can withstand events that are difficult to predict. In order to survive, Taleb proposes “antifragility” in systems; the ability to benefit and grow from volatility, uncertainty and stress. 

Now it is more important than ever to be agile, find creative business survival solutions, and more importantly, plan ahead. After all, the Coronavirus pandemic is a blip in time and will certainly not last forever. When we step into the light again, those businesses that showed “antifragility” while in the dark, will be the new leaders of the world and we will wake up to a world that has become more online than ever. 

While Corona is wreaking havoc on some industries, it is bolstering others and creating new ones. For business owners that are finding their stride during the crisis and looking to expand operations in a different direction, Become will be there to help guide them and keep them in the know with regards to existing and new funding options. 

Above all, what is key to remember is that post-pandemic, many small businesses will need to rebuild, while others will retool or expand. Become will be there to support them all and in the meanwhile, serve as a power-house of information on funding news, and how to find hidden opportunities during this Black Swan event.

Follow our Covid-19 business loan updates page to stay in the know, afterall, knowledge is power.