Fintech industry gives cautious welcome to government’s new micro loan scheme

Fintechs and other small and medium-sized businesses impacted by Covid-19 can potentially access loans worth up to £50,000 backed by a 100 per cent government guarantee, Rishi Sunak, the chancellor yesterday (Monday) announced.

The announcement by the chancellor of the new lending scheme follows complaints that companies were having difficulty getting credit under the government’s Coronavirus Business Interruption Loan Scheme (CBILS), designed to help them survive the Covid-19 shutdown.

In a significant change to the CBILS, companies applying for the new loans will only have to prove that they were viable before the coronavirus crisis, and not that they will be viable after the crisis.

One complaint about the CBILS scheme is lenders were turning down loss-making firms- or those close to making a profit- hitting fintechs and startups focused on scaling up more than profit.

However, the Treasury did not confirm to Altfi whether loss-making firms would have trouble accessing the loans, under the scheme.

One fintech company, Tide, said it was "extremely concerned" that the new “micro loan scheme” will encounter the same problems as the CBILS scheme.

The chancellor said the new "micro loans scheme" would mean the small companies could access credit they had been previously denied.

The scheme will start from Monday next week, offering loans to companies of between £2,000 and £50,000, which are 100 per cent taxpayer-backed, within days of applying, amid fears that smaller firms could be forced to close because of the impact of Covid-19. 

By comparison, the CBILS allows smaller firms to borrow up to £5m with the government providing lenders with a guarantee of 80 per cent of each loan.

The loans will be worth 25 per cent of a company's turnover and will be interest free for the first 12 months, with the government paying instead.

Labelled the Bounce Back Loans scheme, Sunak said: “Our smallest businesses are the backbone of our economy and play a vital role in their communities. This new rapid loan scheme will help ensure they get the finance they need quickly to help survive this crisis.”

Sunak said banks will not need to perform any “forward looking tests of businesses viability” and that businesses would need to fill out just a “simple, quick, standard form”.

"This is in addition to business grants, tax deferrals, and the job retention scheme, which are already helping to support hundreds of thousands of small businesses," the chancellor added.

Firms will be able to access the loans through a network of lenders, which are those accredited by the British Business Bank to lend through the CBILS.

These include the likes of Starling Bank and Funding Circle.The Treasury said it will finalise the list on Monday next week.

Oliver Prill,Tide CEO said: "Small businesses have been disproportionately impacted by this crisis. As a business banking platform providing services to 1 in 40 UK SMEs, we welcome the introduction of the new Bounce Back Loans.”

“The only way to make sure vital cash gets to SMEs is with a 100 per cent guarantee on loans of up to £50,000.”

 "However, we are extremely concerned that this scheme will encounter the same issues as the CBILS, particularly a lack of reach.”

“We implore the Treasury and British Business Bank to allow fintechs like Tide to deliver this funding as quickly as possible. We are ideally placed to distribute funds to small businesses and want to get started as soon as possible.”

"By offering the scheme only via traditional bank lenders, a fifth of small businesses will not get easy access. Tide has already been contacted by small businesses asking if they can access Bounce Back Loans via our platform, and we are desperate to provide this vital support to our members."

Charlotte Crosswell, CEO, Innovate Finance, said: “We welcome the new Bounce Back loan scheme announced by the Chancellor to back Britain’s small businesses – many of which are struggling to survive amid the coronavirus pandemic. We hope it will help address the issue of the speed of loan distribution."

At Innovate Finance, we have been urging the British Business Bank to expand the list of accredited firms, to take advantage of the quick decision and distribution methods offered by fintech lenders.”

“We know that many are going through the accreditation process, and look forward to seeing more of them on the list of approved lenders in the near future. It is clear that there is growing demand for this micro-funding, and fintech lenders can expedite these applications."