By Oliver Smith on Wednesday 15 April 2020
As the clock ticks down towards the end of the month, millions of SMEs face a cash crunch as the non-bank lending sector lacks liquidity at a critical moment.
Fintech industry body Innovate Finance is joining the call of non-bank lenders for the government’s support in ensuring their lending to millions of UK SMEs continues.
Along with the Association of Alternative Business Finance (AABF) and others, Innovate Finance is proposing a new government-backed funding program to include:
A Forbearance Liquidity Funding Scheme: To support non-bank lenders in providing interest payment holidays and similar to SMEs unable to service their existing loans.
Bank guarantees from incumbent lenders to non-bank lenders: To aid non-bank lenders in raising new funding lines, which are currently closed.
A Bond Purchasing Scheme: To help non-bank lenders to continue issuing notes while the securitisation market is closed, which will top-up their existing funding.
The non-bank lending sector currently faces a squeeze on two fronts.
New borrowers aren’t inclined to take out a loan while the government’s bank-based Coronavirus Business Interruption Loan Scheme (CBILS) is operating, even if they’re unable to qualify, and at the same time existing borrowers are struggling to service their non-bank debts.
“What needs to be recognised is that we have a far more diverse lending sector since 2008, and as a result SMEs have been using the alternative sector as their first port of call,” Innovate Finance CEO, Charlotte Crosswell told AltFi.
“Today high street banks may not have a lending relationship with many of the SMEs that the government is looking to support.”
Crosswell and others have already pointed to the flaws in the bank-based CBILS, which is proving painfully slow at lending much-needed cash as SMEs approach payroll at the end of the month.
“At the same time loss-making companies won’t even qualify for CBILS. We have a thriving fintech sector that wouldn’t qualify for a loan right now.”
This morning the AABF also called for CBILS itself to be overhauled, pointing to the “laborious and bureaucratic” process which has seen just over 6,000 loans granted so far.
The key call of the AABF is to dramatically expand the distribution of lending, and to shift the liquidity from the British Business Bank towards commercial lenders.
One of its suggestions is to channel loans through Bank Referral Scheme lenders (those listed on Funding Options and Funding Xchange) and by using the big four accountancy firms along with industry trade bodies like Innovate Finance to ‘fast track’ approvals to non-bank lenders.
“We just want to leverage the great technology that fintechs and non-bank lenders have built over the last 10 years, to support UK SMEs,” added Crosswell.