Who’s the competition? It’s an important question for any business, and one that fund managers lending to small and medium-sized enterprises would typically have answered in the past by pointing to banks and other fund managers. That was until covid-19 came along and the main competition became governments.

In the exceptionally strange world of 2020, governments stepped in with various schemes designed to keep SMEs afloat as full lockdowns and other restrictive measures severely hampered their trading activities. So huge has been their impact that, rather than providing competition, it would be fair to say they have achieved a temporary monopoly.

“SME lending is dominated by CBILS at the moment,” said Paul Taberner, managing director of UK-based small business lender Mercia Debt Funds, in an article in our December/January issue. The Coronavirus Business Interruption Loan Scheme had, at the time of publication, lent £17.2 billion (€19.1 billion; $23.4 billion) to 73,000 firms in the UK.

It seems that pretty much every SME in the country looking to raise debt has been doing so via CBILS since early 2020. However, this has not meant that SME debt fund managers have been putting their feet up for a well-earned rest. Instead, many have jumped on board with the government programme by offering CBILS loans themselves.

Of course, there is little if any money to be made from these loans – they are an emergency stopgap, after all, designed simply to prevent companies from going to the wall. But this does not mean to say 2021 will be another year of slim pickings for SME debt funds. For one thing, CBILS – in line with many other similar schemes – had a deadline of the end of March. Governments will not be the dominant force for much longer.

Moreover, assuming a much more favourable economic outlook in 2021 (which many people do), even troubled small companies will fancy their chances of returning to growth. In doing so, they may well seek to refinance out of the government loans, which can be restrictive and only used for specific purposes such as managing cashflows, paying employees and buying inventory – priorities for businesses that are simply looking to keep the lights on.

And that refinancing opportunity is where fund managers will be firmly back in business, providing the flexible (albeit somewhat more expensive) capital for strategic innovations, acquisitions and all those other activities that indicate a welcome return to health.