The Covid-19 crisis and subsequent initiatives like the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS) have created a huge challenge for lenders. The government has tasked them with distributing billions of pounds to SMEs in a matter of weeks. All while sticking to the normal compliance and risk procedures that, while essential, can delay decisions.
We’ve seen over £1 billion lent per week since CBILS/CLBILS launched and over £8 billion lent through the more streamlined BBLS. For many SMEs, though, the response has been nowhere near fast enough. Though around 36,000 applications have been approved for CBILS and nearly 270,000 for BBLS, there have also been 130,000 rejected applications, as well as incomplete enquiries or SMEs who just couldn’t get the funds in time to keep trading.
There’s also been criticism of how few FinTech firms have been accredited as part of these schemes. Although companies like Funding Circle and Starling have gradually been added to CBILS, it’s been a slow process. In a Q&A we conducted with the British Business Bank they told us they recognised the need for greater choice and had expanded their accreditation team to expedite approvals. Ultimately though this will still only amount to a handful of new lenders each week. Compare this to the 5000+ lenders in the Paycheck Protection Program in the US, which distributed its entire $310 billion in under two weeks.
The BBLS has also been criticised for how heavily concentrated the scheme is around traditional banks, with FinTechs being shut out, raising questions of fairness and competition. Concentration in the lender pool reduces choice for SMEs and risks leaving behind businesses that don’t already have an account with an approved lender.
How tech can get help to SMEs faster
Beyond the challenges created by the sheer amount of money involved, too many lenders still rely on outdated technology - making decisions using spreadsheets, PDF forms or asking customers to call their local branch.
Bad enough when things are going well, but during a crisis SMEs can’t afford to spend days waiting for a decision. It’s not a question of good customer experience, it’s a question of survival. Our insights show that there was a 72% increase in SMEs going into liquidation in April compared to last year.
This is where FinTech firms could and should be playing a crucial role in helping SMEs get access to funding. Many of these FinTechs have digitally native operating models built on best-in-class APIs, and can more quickly scale to meet the needs of SMEs than lenders who haven’t updated their technology stack.
Similarly FinTech marketplaces that allow SMEs to view a range of lending offers with the click of a button, can help reduce the administrative burden that comes with applying for multiple loans with multiple lenders through multiple processes.
Speaking to Simon Cureton, CEO of Funding Options he told us - “Fintech has always been digital-first. We are able to scale our technology very quickly to adapt to high-demand and changing circumstances. Funding Options has done just this to enable it to incorporate both the CBIL & BBL schemes into its service for independent UK businesses. What SMEs need more than anything right now is reassurance that they can access the funding they need to save their business. Fintech can help by speeding up the distribution of funds and also giving small businesses the choice and level of service they deserve.”
This sentiment has been echoed across the industry, with Charlotte Crosswell, Chief Executive of Innovate Finance, adding that “(FinTechs) have a vital role to play and in many cases, have been the first point of contact for SMEs needing financing”.
What government and FinTech needs next
The Government and the British Business Bank need to rethink their approach to accreditation so that more companies can play a bigger part in the existing schemes. That could be by offering probationary periods during which new lenders are temporarily accredited or allowing accreditation via partnership with other lenders.
It’s our hope that the government and British Business Bank will learn from feedback received in the early stages of implementing these programs, and ensure that future initiatives include a much wider range of providers. For this to happen, the government needs to provide alternative lenders with access to cost-effective sources of capital such as the Term Funding Scheme (TFSME), which is currently only open to banks and building societies. Not getting FinTech lenders involved not only risks the survival of tens, if not hundreds of thousands of SMEs, but it also risks the future of the UK’s alternative lending ecosystem that has been built over the last decade.
FinTech companies have the ability and desire to help SMEs, but to respond to a crisis the size of Covid-19, it requires partnership - working together with banks or pushing for the government to provide access to lower cost of capital and more liquidity in the name of supporting small business.
In the longer term beyond Covid-19, we need to see the industry as a whole stepping up to deliver the kind of fast, digitally native products to SMEs that some are already offering. This will not only help the SME economy prosper, but also make the economy more resilient in the face of future crises.