The companies dealing with the COVID19-related financial problems are still a dime a dozen. Even as companies were emerging from the lockdowns (we might have to go back there again soon), the insolvency rate kept rising.
To bite the bullet, the global economy insolvency index is likely to hit a record high of +35% by 2021; many countries are experiencing a record high since the 2009 financial crisis, with the UK looking at a 43% insolvency increase.
The British government has stepped in, publishing its Corporate Insolvency and Governance Bill, meant to provide businesses with protection from creditor action and ease the overall burden a bit.
Nevertheless, the devil’s in the details. The governmental support was mostly based on the promise of a gradual coming out of lock down in which businesses were able to become operational and profitable enough to absorb all the debts accrued as a result of the pandemic. A sudden withdrawal of these supportive policies would only add insult to injury, with a 5-10% projected upsurge in insolvencies.
However, if the insolvencies are limited in the short-term, what’s to stop the “zombie companies” from appearing to raise the insolvencies in the medium and long term?
According to insolvency experts, a perfect storm looks like this: half a million of UK firms are at risk of collapse. Any chance of business growth in this no man’s land of the global economy? Yes, and we’re not going on a wild goose chase.
Enter aggressive scenarios of business growth during the Coronavirus
The global economy in times of Coronavirus looks like a very gloomy no man’s land, so it is quite hard to make hay while the sun shines when there’s no sun, right?
Well, it seems some sectors are benefiting from the pandemic by taking an aggressive growth approach to leverage the crisis. For starters, there are the industries in high demand which look like heaven-sent hot topics on the market; we’re talking smart logistics, digital solutions, and AI. The companies engaged in pharmaceuticals are also seeking to grow aggressively and weather the financial crisis of 2020.
From a financial standpoint, there are several approaches we have seen in the market. Here they are
Fintech-based business finance solutions
Even before the pandemic, less than 15% of the SMEs in the fast-growing economies had access to the credit they needed to grow. These innovative, data-and-artificial-intelligence-driven solutions can serve SMEs’ financing needs and unlock their potential to maximize their business impact even through the pandemic.
How? By using advanced analytics platforms and artificial intelligence to assess transactional and alternative data, fintech lenders can gain a much deeper understanding of a business’ creditworthiness, evaluate the risk more easily and issue loans in as little as 24 hours. Business cash flow is solved! (if only it were that easy)
Acquiring distressed assets
Financial industry experts are pointing out ripe opportunities for M&As. How the tides have turned. Where once-thriving companies are now wondering if they can stay afloat, other businesses find themselves with a sudden influx of business cash flow.
Another cynical thing is how the COVID-19 has made financing an easy task, with more access to cheap debt, coupled with various government funding options. However, the target asset owners need to remain flexible and open for discussion on different deal structures, especially if they are willing to accept creative ones, such as vendor financing, or earn-out structures.
Alternative finance options: business grants, debt and equity options
Alternative finance can provide the vital liquidity shot an SME might need to grow through the pandemic. The alternatives lenders, however, have a preference for those SMEs that can prove resilience and a robust business model fit to grow into a valuable firm.
Alternative lenders usually invest in SMEs in their “infancy”, to add value, rather than save them, but they are a solution.
In the end, between insolvency and aggressive business growth solutions, there is the global economy’s no man’s land, mined with hidden dangers, and some opportunities.