The fintech industry body has issued a proposal asking the UK government to adopt a host of measures that would enable fintechs to continue lending to small- and medium-sized businesses (SMBs), per AltFi. The proposal also aims to get much-needed funds to SMBs more efficiently than the existing accredited British Business Bank (BBB) lenders have managed thus far.

the smb lending ecosystem



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The program would include support to allow fintechs to issue interest payment holidays; bank guarantees from incumbent financial institutions to help fintechs raise new funding lines; and bond purchasing to boost fintechs’ existing funds. The proposal is supported by other industry bodies as well, including the Association of Alternative Business Finance (AABF).

The BBB has been slow to approve fintechs to lend through government relief programs, especially compared with the US’ faster progress. There is despair among the UK fintech community regarding the laggard approval of fintechs as Coronavirus Business Interruption Loan Scheme (CBILS) lenders — only Starling Bank and OakNorth Bank have been approved so far.

In contrast, the US Small Business Administration (SBA) has approved five fintech lenders to participate in the distribution of Paycheck Protection Program (PPP) loans. This is all the more frustrating for UK fintechs given that the BBB signaled its intent to approve new lenders to the program prior to its US counterpart.

The government is unlikely to implement Innovate Finance’s outlined proposal anytime soon, and fintechs may lose customers to CBILS-approved lenders as a result — we think they should cushion this blow by launching other initiatives to support struggling SMBs.

It seems improbable that the government will act upon the pleas of Innovate Finance, and this might lead to fintechs losing SMB borrowers to approved lenders. The BBB appears to be prioritizing implementing the scheme through its existing lenders, rather than approving new lenders. This may result in a significant loss of customers for fintechs, as SMBs instead apply for government-funded loans.

That said, the BBB’s accredited lenders have been slow to approve loans, and there is heightened anxiety among SMBs about when they will receive funds, so it remains to be seen whether this loss would be permanent — SMBs that don’t have a positive experience with an approved lender might not stay loyal to it after the crisis abates. 

If they can’t continue to facilitate loans, fintechs should focus on launching products and services that can support SMBs in other ways amid the economic uncertainty. While the BBB may eventually add new fintechs to the list of approved lenders, we think fintechs’ immediate priority should be on developing initiatives that can lend a hand in other ways to those in dire need.

For example, Tide released an eligibility tracker for SMBs to work out the amount they are entitled to receive, and Muse is offering interest-free loans for SMBs awaiting furlough payments. Initiatives such as these might allow fintechs to maintain their customers during harsh market conditions, as the recipients could look positively upon the assistance they received in their time of need.

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