Funding Xchange warns of risk in return to pre-crisis lending
Funding Xchange has urged lenders to be cautious about relying on pre-crisis data when conducting credit checks.
The business finance aggregator has warned that by returning to pre-Covid risk analytics, lenders are likely to miss key challenges that businessowners may now be facing.
The most recent quarterly FXE Lending Monitor showed the extent to which government lending schemes have protected business-owners during the pandemic.
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However, Funding Xchange has pointed out that these government interventions have now largely ended, and newer businesses may struggle without continued access to this sort of support.
“Given the success of the interventions, the data from the last two years is ‘sanitised’ of arrears and defaults as well as business failures that under normal circumstances would have occurred,” said Katrin Herrling (pictured), chief executive of Funding Xchange.
“Building risk assumptions around this data set is misleading if we accept that some of the distortions will wash out and normal patterns return as the effects of the interventions wane.
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“Banks and lenders need to bridge this gap between observed events and actual risk as they calibrate their risk appetites.
“This requires an understanding of actual trading performance and available cashflow, rather than reviewing events like arrears.”
The latest FXE Lending Monitor found that business cash balances are starting to return to pre-crisis level.
Businesses applying for funding through the Funding Xchange portal saw their cash balances increase on average by £20,000 due to government interventions in 2020. The average cash balance held in the latest months has fallen to the pre-pandemic level of £5,000.
Furthermore, the monitor found that during 2021 insolvencies reduced by 38 per cent, whereas by June 2022 there had been a year-on-year rise of 40 per cent.
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