I am the SVP of Partner & Lender Strategy at Lendio, the largest marketplace for small business financing.
In early March, when the word “coronavirus” was still a whisper in the halls of Congress, I was returning from a business development meeting in California to pitch a prospective partner.
With a new year and new goals fresh in our minds, it seemed almost impossible that a black swan event would change the face of business lending in just a few weeks’ time. Who could have predicted the extent of the crisis beginning to unfold?
Even for companies like mine, which already had a blueprint in place for operating during an economic downturn, this was a shock to the system. We’ve learned a few things since then, and while as an industry we remain cautious, we see this as an opportunity to improve our systems and remain agile.
Rapid Change Makes Lending Even Riskier
When the novel coronavirus forced businesses to shutter without warning, these businesses were suddenly unable to provide lenders guarantees about their ability to generate revenue. And without these guarantees, businesses can’t access the capital they need to survive.
Under normal circumstances in commercial lending, lenders’ ability to assess risk is often based on how a business performs financially over a period of time. Lenders must rely on steady data.
Now lenders are forced to weigh the risk of issuing lines of credit that will not be used for working capital, but instead, for survival. This rapid change has truly stifled lenders’ ability to assess risk; as a result, they may have trouble participating in lending.
Additionally, when businesses quickly became nonoperational, some also became unable to service their existing debts with lenders. As I spoke with our lending partners about their mounting concerns, one thing