The measures announced by the Swedish government through the National Debt Office, and the support package that the Swedish central bank launched, are important steps for reducing damage to the Swedish economy due to the Covid-19 situation.
In this difficult time, politicians and authorities have delivered, at least parts of, a solution. But in order to avoid a wave of bankruptcies, the method of distributing emergency loans must be efficient and scalable, something that the major banks will find difficult to manage. Findec and a number of successful fintech companies are now ready to fill the gap that exists, and by that do their part to save Swedish SMEs.
A prerequisite for the Swedish central bank and the Swedish National Debt Office’s measures to have an effect is that they reach recipients efficiently, and on time. The most important target group, small and medium-sized enterprises, SMEs, represents three quarters of the country’s jobs, and accounts for a majority of Swedish GDP. Any solution that doesn’t fully allow these companies, regardless of industry, to take advantage of the measures, will unnecessarily damage the Swedish economy.
There’s an evident risk that the major banks, through their limited scalability and slow processes, are the weak link in the state emergency action plan. Can the banks act fast enough to support the SMEs? The answer is probably no. Although they have the will, the major banks lack the technical ability and speed to distribute loans based on the guarantees that the government has launched.
The statistics is clear. Since the financial crisis in 2009, the Swedish major banks have until today reduced their market share in lending by about ten per cent, while total lending to companies has increased by about fifty per cent. The group of companies that entered the market and developed modern, fully scalable, and technology-based business models for lending to small businesses, are the fintech companies. And today, Swedish fintech companies are exceptionally well positioned to contribute to an efficient distribution of emergency loans to SMEs in this period of crisis.
The National Debt Office’s package is a good call – but it doesn’t reach the SMEs. The central bank’s emergency plan to channel SEK 500 billion for lending, via banks and financial institutions, are too far away from the SMEs’ everyday operations. The banks are already hesitating to utilize the emergency package since they don’t deem themselves as institutions to take risks by issuing loans in times of crisis.
“Like all measures, it must be delivered efficiently in order to work. There is a great risk that the emergency loans will not be processed quickly enough via the major banks.”
The measure recently implemented, that should work, is the National Debt Office’s 70 per cent loan guarantee – acting as a security commitment, from the state, for SME lending. An excellent measure that allows private lenders to take greater risks in supporting SMEs with loans. In addition, the National Debt Office’s terms and conditions for the guarantees are sound – only loans to viable companies where loans have fixed-term amortization with an interest-free period. But like all measures, it must be delivered efficiently in order to create impact. In order to give Swedish companies a fair chance of survival, the relief must be made now. The Swedish National Debt Office’s guarantee of SEK 100 billion have to be used by lenders during the second quarter of this year.
However, if the primary channels will be the banks – with their slow and unscalable processes – there is a great risk that these loans will not be paid off quickly enough. The best channel for distributing loans would be to utilize the fintech companies with their efficient processes. They provide digital loan solutions based on fast and advanced data processing, and an efficient and transparent assessment of the borrower’s creditworthiness that takes place in seconds or hours, not weeks or months. But, as a consequence of the National Debt Office’s current program, this large and strategic resource is entirely neglected.
Sweden should set a global example. Sweden’s financial situation is in good shape creating a significant manoeuvrability to cope with the crisis. By that, it would be a tragedy for Sweden’s trade and industry if the financial resources at hand will be unutilized as a result of the bank’s bottlenecks. In today’s situation, with an enormous pressure from both existing and new borrowers, it becomes an impossible equation. Above all, new borrowers, that prior to the pending Covid-19 situation ran viable companies, are at risk of falling completely outside.
Many companies are in a negative spiral with a worsening financial situation. Loans will not solve everything, but for many companies, loans with decent terms can be the difference between survival and downfall. And obviously, the state also benefits – the same liquidity contribution that helps companies to secure their survival will secure tax revenues long term.
“Sweden should leverage its world-leading position in tech to address one of the most difficult crises of our time.”
Findec and a number of leading Swedish fintech companies are at disposal for filling the gap that the banks potentially creates due to their slow processing of the National Debt Office’s guarantee program. We wish to find, in consultation with both the Swedish National Debt Office and the major banks, the best solution for Sweden in this urgent situation.
Other countries have already identified this problem. In the United States, the emergency loan solution includes all lenders – banks as well as fintech companies – who have relevant experience and meet regulatory requirements. Well-established fintech companies such as Kabbage and Funding Circle are likely to be included in the government loan programs. Sweden now has a unique opportunity to leverage its world-leading position in tech to find innovative and market-neutral solutions to address one of the most difficult crises of our time. We want to be part of the solution of the National Debt Office’s guarantee program. But it is a matter of urgency if we are to avoid the big wave of bankruptcies that have already begun to take shape.
Findec (Sweden’s fintech hub) and the CEOs of the fintech companies Capcito, Corpia, Credo, DBT, Fedelta, Float Lending, Froda, Invoier, Kameo, Näktergal, Mynt, QRED, Savelend och Tessin.