Alternative lending startups are entering into strategic collaborations to streamline capital access for businesses in the United Kingdom

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Before 2022, startups found it relatively easier to raise fresh capital at high valuations for their business. But the current macroeconomic conditions faced by small businesses and startups mean that they are having a difficult time raising capital from venture capital and private equity firms. This downturn in venture capital deal-making, however, is proving a growth period for alternative lenders. Globally, alternative lending startups are recording strong growth, as more and more businesses are turning to these players for their capital requirements.

To further streamline capital access for businesses, alternative lending startups are entering into strategic partnerships in the United Kingdom. For instance,

• In September 2022, Capchase, a digital lender to startups, announced that the firm had entered into a strategic partnership with Xero, an accounting software platform. Under the strategic collaboration, the firms will enable small and medium-sized businesses to access capital more easily in the United Kingdom.
• With the integration of Capchase in the Xero App Store, businesses in the country can apply for growth capital through Xero. Furthermore, as the financial data will be synched between Capchase and Xero, the approval process for businesses will be more streamlined and they will get access to funding within 48 hours of application.

Because Capchase makes the lending decision based on the recurring revenue of businesses, the integration with Xero means that Capchase will get access to revenue and other data, thereby allowing the lender to make the decision immediately and more effectively. Furthermore, Xero has over 3 million subscribers worldwide. This means that the firm can provide capital to more businesses within a short period of time, thereby accelerating its growth.

Notably, the European business for Capchase has recorded strong growth in 2022. Since the start of the year, the firm had expanded its geographical footprint in the region, with operation launches in Belgium, the Nordics, and the Netherlands. Furthermore, to deploy more capital to SaaS businesses in the region, the firm is also raising capital. For instance,

• In July 2022, Capchase announced that the firm had raised US$400 million in a debt financing deal, which was led by i80 Group and an undisclosed international banking group. Some other venture capital firms that are investors in Capchase include SciFi VC, Bling Capital, 01 Advisors, QED Investors, and Caffeinated Capital.
• In its Series B equity round, the firm also raised US$80 million in March 2022. As of March 2022, the firm had funded over 3,000 companies with over US$2 billion in capital in the United States and European countries.

The source of funding has dried up for startups and SMEs. With the demand for alternative funding growing rapidly among businesses in the United States, the United Kingdom, and other European countries, the current economic environment is expected to further accelerate the growth of Capchase over the next few quarters. Furthermore, PayNXT360 expects the firm to further expand its geographical footprint in the European region and other parts of the world over the next three to four years.

From the short to medium-term perspective, more players in the alternative lending segment are expected to enter into such strategic collaborations, which can help them to streamline their operations and offer capital access to businesses in a more efficient and faster manner. While the current economic environment continues to work in the favor of alternative lending startups, it also means that the risks for these players have gone up significantly in this rising interest rate environment. Consequently, PayNXT360 expects that the approval rates for these firms will decrease subsequently from the short-term perspective.