The government needs to level the playing field between non-bank lenders and banks to deliver emergency loans to small businesses, small lenders say.
Simon Goldie, head of asset finance at the Finance & Leasing Association, said: “In a crisis situation, providing government funding to just one segment of lenders distorts the market.”
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HM Treasury has told non-bank lenders dishing out government-backed loans that they won’t have access to cheap finance from the Bank of England.
The move comes as a fresh blow for fintechs who have struggled to access funding to provide SMEs with government-backed loans.
Non-bank lenders have been accredited to provide the government’s bounce-back loan scheme, which provides a state guarantee in order to encourage the provision of credit to small and medium-sized companies.
However, many fintechs say that they have struggled to secure the funds they need to provide the loans.
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By GlobalDataNon-bank lenders face an uphill battle
Charlotte Crosswell is the CEO of Innovate Finance, the industry body representing the UK fintech sector. She said:
“We have worked tirelessly with industry to highlight to government and regulators the unique capability of non-bank lenders to distribute loans more efficiently to small businesses, using technology to assess, match and distribute applications at high volumes and speeds.”
“However, once accredited, non-bank lenders then have to secure wholesale funding in order to provide CBILs and BBLs loans, and this can result in challenges for the sector.”
“As lockdown eases and we embark on a journey towards economic recovery, we urge policy makers to recognise the pivotal role they play in providing the country’s small businesses with the vital financial lifeline they need to get back on their feet.”
“There’s a lack of equity”
Smaller players said the Bank’s bid to boost lending during the pandemic will damage competition in the sector after funding support shut out non-bank and fintech lenders.
Threadneedle Street was warned it was distorting the market by providing cheap loans to banks and building societies through the Term Funding Scheme, but not extending the help to smaller rivals deemed riskier.
Christian Faes is the co-founder and Exec Chair of LendInvest, which is marketplace platform for property finance, and one of the leading Fintech businesses in the UK. He said:
“We’ve seen through the crisis that the system is very much one that is rigged towards the banks, which have access to virtually free money, whereas obviously the non-banks don’t.”
Faes believes non-bank lenders will be key to helping the economy recover from the crisis because they were vital to underserved customers.
Non-traditional and specialist lenders provide mortgages, consumer finance and business loans worth billions of pounds every year, becoming a vital part of the market in the past 10 years.
“We’re seeing some recognition” of our role
Their access to funding has improved since spring, but these non-traditional lenders are still disadvantaged by the Bank providing ultra-cheap funding to bigger rivals.
“Since March, we have been arguing that the only way to level the playing field is to give non-bank lenders access to direct funding,” said Mr Goldie. “We are increasingly seeing some recognition of the crucial role that non-lenders play in the market, but this has to convert into action.”
