UK offers 100% government backed loans, but alternative lenders still fenced out

Written by Ruby Hinchliffe
29th April 2020

Starting next week, the UK’s chancellor Rishi Sunak will allow banks and lenders to roll out 100% taxpayer-backed loans to speed up the distribution of coronavirus aid to small businesses from weeks to “days”.

Aiming to unlock a backlog of credit checks held by banks which stalled over fears many small firms would fold before getting the loans, the government will now pay the interest for the first 12 months on loans of up to £50,000.

Chancellor Sunak says he has no plans to underwrite all loans – that is, those over £50,000

The loans can be applied for through a two-page online self-certification form which just requires firms to prove that they were viable before the crisis, rather than requiring firms to prove they will be viable after the crisis.

Sunak told the Commons that the new “microloan scheme” would provide a “simple, quick, easy” solution for those banks trying to avoid risk.

But many alternative lenders, yet to be accredited by the British Business Bank (BBB), worry they will be fenced out again.

“It is critical the Bounce Back Loans scheme is administered and delivered as intended, in the timeframes envisaged and at scale, which didn’t happen with the Coronavirus Business Interruption Loan Scheme (CBILS),” says Funding Options’ CEO Simon Cureton.

“The alternative lenders are ideally set up to distribute Bounce Back Loans through the scheme and yet it would appear they may be excluded from participation based on accreditation.

“It would be great to see Her Majesty’s (HM) Government and HM Treasury embrace the full ecosystem of lenders in the small and medium-sized enterprise (SME) sector to maximise the speed of distribution and we await further details in the coming days.”

The British Business Bank has accredited just two alternative lenders in the last few weeks, which are Funding Circle – the largest alternative lender in the UK – and ThinCats, a bespoke business funding provider for UK SMEs.

But many still unaccredited lenders are trying to get their voices heard. Last Friday, a group of 166 British lenders led by WorldPay founder Nick Ogden called on UK government to provide them with £5 billion in funding so they could get coronavirus loans out to SMEs before month end.

WorldPay and ClearBank founder Nick Ogden

Lenders involved in the call to government included Just Cash Flow, Credit4, Invocap, Merchant Money and Fleximize. So far, no reply to their calls has been announced.

Sunak says he has no plans to underwrite all loans – that is, those over £50,000. “We should not ask the ordinary taxpayers of today and tomorrow to bear the entire risk of lending almost unlimited sums to businesses who may, in some cases, have very little prospect of paying those loans back and not necessarily because of the impact of the coronavirus,” he says.

Founder and CEO of financial advisory firm RWTGrowth, Reece Tomlinson points out that “despite the government paying the first 12 months of interest, businesses need to understand the repayments after the first year”.

“Business leaders would be wise to speak to their accountant, conduct the proper due diligence and explore other options before taking out up to £50,000,” he says.