Incumbent banks block alternative lenders' access to BoE's 'Term Funding Scheme'

The move comes as a fresh blow for fintechs who have struggled to access funding to provide SMEs with government-backed loans.

HM Treasury has told non-bank lenders dishing out government-backed loans that they won’t have access to cheap finance from the Bank of England, as reported by The Times. 

Following lobbying from industry figures, such as Innovate Finance, the government was consulting on whether or not it would allow incumbent banks to pass on cheap finance to accredited non-bank lenders, a move which it has now rejected. 

Charlotte Crosswell, CEO of Innovate Finance, said: “We have worked tirelessly with industry to highlight to government and regulators the unique capability of non-bank lenders to distribute loans more efficiently to small businesses, using technology to assess, match and distribute applications at high volumes and speeds.” 

“However, once accredited, non-bank lenders then have to secure wholesale funding in order to provide CBILs and BBLs loans, and this can result in challenges for the sector.” 

“As lockdown eases and we embark on a journey towards economic recovery, we urge policy makers to recognise the pivotal role they play in providing the country’s small businesses with the vital financial lifeline they need to get back on their feet.” 

Currently, the 100 per cent government-backed Bounce Back Loan Scheme has a fixed interest rate of 2.5 per cent, but some alternative lenders have struggled to amass enough capital to lend out to SMEs. 

The move means that many SMEs that had been rejected for funding by traditional banks, will have had their hopes for fresh fintech loans dashed as alternative lenders scramble to access more funding. 

A spokesperson for HM Treasury said: “Alternative lenders and challenger banks are vital to providing credit to SMEs, which is why we will continue to work with non-bank lenders to support their participation in our loan schemes.” 

This blow comes just days after alternative lender Tide shuttered its Bounce Back Loans (BBLS) after its pool of money ran dry. 

In a letter to his 150,000 SME customers, Tide CEO Oliver Prill wrote that the business banking provider would not be resuming its BBLS lending.  

Tide had hoped to secure at least £100m in fresh funding, however, investors were wary that the low-interest rate wouldn’t generate enough of a return, ultimately halting Tide’s BBLS offering. 

The fintech has been a vocal critic of the accreditation process that banks and non-bank lenders have to go through in order to offer the government-backed loans, after rumours swirled that Tide had reached its £50m lending limit just a few days after it became an accredited lender. 

Despite the Bank of England denying non-bank lenders access to cheaper finance, the British Business Bank is reportedly trying to encourage investors to provide alternative lenders with cash by assigning the 100 per cent guarantee to third parties. 

AltFi contacted the Bank of England for comment but it declined to provide one.