Christoph Rieche, co-founder and chief executive of iwoca
On May 20, the British Business Bank announced the accreditation of six new lenders to channel funding to small businesses under the UK government’s much-criticized Coronavirus Business Interruption Loan Scheme (CBILS).
Bibby Financial Services, iwoca, Scania Financial Services, Triodos Bank UK, Ulster Community Investment Trust (UCIT), and Woodsford TradeBridge now join 68 already accredited CBILS lenders
That sounds like a lot of lenders. But Keith Morgan, chief executive of British Business Bank, explains: “Our accredited lenders have seen an incredible demand for Covid-19 business loan schemes since they became available.”
It is perhaps a shame, then, that it has taken two months since the scheme was announced to get iwoca on board, given that it is a specialist in exactly the type of lending to precisely the kinds of businesses it is supposed to help.
Government statistics show UK businesses have to date benefitted from over £22 billion in loans and guarantees to support their cash flow during the crisis through three schemes delivered by the British Business Bank, including 40,564 facilities worth £7.25 billon through CBILS.
That sounds like a lot. But Christoph Rieche, co-founder and chief executive of iwoca, points out: “There are nearly 800,000 businesses in the UK that generate more than £250k in annual revenues, of which 450,000 generate more than £500k in annual revenues. The demand for CBILS from these businesses is significantly larger than the combined processing capacity of the banks, who, in normal times, approve approximately 7,000 small business loans per month, and in April approved around 25,000 under the CBILS.”
While most bank chief executives trumpet how honoured they are to be approved to work on the CBILS scheme, Rieche somehow manages to contain his excitement.
“Our accreditation is a step in the right direction, but there’s more that can be done,” he says.
Rieche suggests two ways forward: more collaboration between accredited lenders and in particular between the large banks and the fintechs now joining the scheme; and more funding support for PRA-regulated non-banks from the Bank of England.
The government needs to go one step further to level the playing field between banks and non-banks so that we can deliver on their commitment to save Britain’s small businesses- Christoph Rieche, iwoca
UK Finance, the trade body for UK banks, is now making a lot of noise about how much has been lent through CBILS because it got off to such a slow start and banks took the blame.
Stephen Jones, chief executive of UK Finance, says: “It’s important to remember that any lending provided under government-backed schemes is a debt not a grant, and so firms should carefully consider their ability to repay before applying.”
There are two issues here: one is availability of funding to lend to businesses; the second is underwriting and processing capacity.
Rieche suggests a new approach to the scheme: “My message to the CEOs of the banks is one of collaboration: we should all be working together to process applications so that we get the job done for small businesses as fast as possible.”
Rieche asserts that iwoca’s processing capabilities for lending match, and, in many cases exceed, those of the big banks.
He says: “We’ll only achieve the best result for small businesses if we work together and adapt. The fintech community has the ability to scale fast, and as a group we have already supported over 400,000 small and micro businesses with finance, representing 30% of all SME lending.”
Shortage of cash
However, the fintechs lack money. When OakNorth Bank, another successful new lender to SMEs, was accredited back in April, it was allocated just £50 million to distribute by the British Business Bank.
Regulated non-bank lenders do not have access to financing from the Bank of England. Given that loans are 80% guaranteed by the UK government, one might think they still count as reasonably good-quality collateral.
Rieche says: “During this unprecedented time the government needs to go one step further to level the playing field between banks and non-banks so that we can deliver on their commitment to save Britain’s small businesses.”
While the largest banks have the necessary access to zero-cost funding from the Bank of England and from deposits, they clearly don't have the systems or capacity to meet demand. They have had to transfer inexperienced staff into small business lending to try and cope.
Fintechs have the systems to deliver at scale, but will struggle without access to cheaper finance.
There are ways to solve these problems.
It’s just a shame that the scheme had already been limping along for two months before its 70th accredited lender was able to suggest them.