UK fintech lenders to benefit from BBL, CBILS

By Emma Olsson | 12 May 2020

UK challenger banks and non-bank lenders could see more SME client acquisitions from offering the government’s Bounce Back Loans (BBL) and Coronavirus Business Interruption Loan Scheme (CBILS), says Kirsty McGregor, founder and chairman, The Corporate Finance Network (CFN). But those unable to adapt may fall out of the ecosystem.

“I think those who have a banking product such as Starling Bank will grow, and I hope that they’ve got the ability to fund that growth,” says McGregor. “I think those other banking products will do very well out of this because a lot of the micro-businesses on the whole have just lost faith with their traditional bankers and decided that they’ll move to one of the new kids. But they need banking facilities.”

Since the announcement of the BBL scheme on April 27, fintech lenders have expressed concern over their ability to offer the loans, which would require offers at a fixed rate of 2.5 percent over the course of six years.

In a letter to the Bank of England seen by bobsguide, Innovate Finance and several fintech lenders suggested the central bank and the HM Treasury implement a scheme similar to the PPP Liquidity Facility launched by the US Federal Reserve, which allows both bank and non-bank lenders to pledge loans that have a 100 percent guarantee as collateral and borrow 100 percent of the loan at a rate of 0.35 percent per year from the Fed.

“I think if the British Business Bank had somehow been able to get a different stream of capital to use for these loans rather than their own internal investing capital structures, that would have been simpler and quicker, and it was something I called for right from the beginning,” says McGregor.

“I think the fintechs were perfectly placed to deliver [the loans] based on their systems and much quicker than the traditional banks would have been able to, but practically they just didn’t have the cost of capital and the liquidity that was needed to meet all the other requirements.”

According to the Innovate Finance letter, fintech lenders currently serve up to 30 percent of UK SMEs. While some fintech lenders such Starling Bank offer both the BBL and CBILS, most – such as OakNorth and Atom Bank – offer only CBILS. Several fintech lenders are still awaiting accredited lender approval, leaving a significant portion small to medium sized businesses without access to loans.

"Our main concern with the BBL scheme is that with the current number of institutions accredited to deliver loans there are a large number of small businesses that are desperate for financial support who will be unable to make an application,” said a spokesperson at SME lender Tide in an email. Tide has applied to become accredited for CBILS but is yet to be approved.

“The second issue is that the existing lenders accredited to deliver the scheme (mainly traditional high street banks) are only lending to existing customers (and encouraging businesses to switch to them), stifling the competition the government has worked so hard to inject into the business banking sector," said the spokesperson.

According to McGregor, the available loan schemes contradict the support for fintechs that the government has championed in past years.

“I think fintechs were really shafted for want of a better word, and it worries me that those who haven’t now offered bounce backs or CBILS are going to have to just mothball their own business probably for six months before normal lending will resume that they’re not in competition with the government on,” she says.

“My concern is that the BBL has given businesses a cushion which will mean that they won’t need a traditional lending [facility] – a pre-coronavirus lending facility they would have used before like Invoice Finance, merchant finance, trade credit. All of those I think are going to really see a decline in inquiries for probably six months, and I think unfortunately we will lose some of our ecosystem of fintechs during that time.”

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