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It seems that every morning as I sit down and refresh the news there is a new story, a new scoop, attracting column inches on the economic damage wrought by COVID-19. From beer sat spoiling in pub cellars to redundancies in the airline sector to the plight of the self-employed, these articles plot a grim course through the pain and misery caused by the crisis as it progresses.
In the face of such a situation the government had to act to protect businesses and livelihoods, and it has acted. The word “furlough” has suddenly entered our collective vocabulary thanks to the Coronavirus Job Retention Scheme System, which began operating mid-April. Businesses have been given the option to defer a quarter of VAT payments – essentially granting them an interest free loan – until March 2021. Lawyers are mulling over proposals to temporarily suspend wrongful trading provisions to give weary directors the confidence to continue in spite of uncertain market conditions.
The most headline-grabbing of all these initiatives though has been the Coronavirus Business Interruption Loan Scheme (CBILS), launched in March through a televised address and promising £330 billion of loan guarantees and grants for UK small businesses. Yet by 10th May only £6.1 billion had been lent. With such an unfathomably large amount supposedly on offer – roughly equivalent to the UAE’s 2018 GDP – why is the government’s flagship policy not delivering?
Part of the problem is capacity. The government-owned British Business Bank, which is tasked with accrediting lenders to deliver CBILS funding, has focused heavily on banks and other traditional finance providers to date. This is an understandable starting point, beginning with the UK’s biggest financial institutions, but this same body reported that only £56.7 billion of gross new lending to SMEs was made by banks in 2019, representing just 17% of the total scheme value. It is therefore essential that it looks beyond the banks. Proper engagement of fintech and other non-traditional lenders, which are becoming an ever more integral part of the SME finance landscape, will be an important next step to increasing the amount and reach of available capital.
The other issue is speed. There have been a number of reports that many SMEs feel banks have been too slow to process applications and start disbursing CBILS funding. Some of this feeling can be put down to a misunderstanding of the nature of the UK scheme, which requires credit assessments to be made, and unfair comparisons against the schemes offered in Switzerland and Germany. But here too, a greater focus on engaging fintech lenders that can often act with more agility than the banks would likely improve distribution, and many commentators from within the industry have taken pains to make this point.
To date, only a small number of fintech or alternative lenders have achieved CBILS approval, but assembling a broader church of lenders to deliver this funding will be crucial over the coming weeks. An opportunity exists for the British Business Bank to improve the efficiency of this well intentioned scheme, whilst a parallel one is there for fintechs to prove their value to the financial system in a time of real market stress. If these chances are taken, perhaps a positive story can emerge from this.
