One of the large fintech and SME loan providers in the UK is urging the government to extend COVID-19 support schemes for all UK SMEs, as they warn that many companies will struggle to borrow money once these schemes end in the autumn.
Iwoca chief executive Christoph Rieche said it would be “very wrong” to close the government’s coronavirus business interruption loan scheme (CBILS) in September, as currently planned.
“Do small businesses need further support in accessing funding after September? The short answer is absolutely,” Rieche added.
“Who believes that you can go back after the extent of this crisis to just normal commercial lending? You continue to need the support of reducing the potential downside risk of lenders. There’s going to be most likely some continued disruption, which as a commercial lender you’re very concerned about.”
The Chancellor announced the CBILS scheme in March, as part of an “unprecedented” package of support for UK SMEs set to be worth £330bn. The government has already agreed to guarantee 80% of all CBILS loans extended by banks and lenders. Sunak launched the follow-up Bounce Back Loan scheme in May, offering 100% guarantee on smaller loans for SMEs.
Close to £50bn ($65.6bn) has been lent to SMEs to date through the scheme which has been run by the British Business Bank (BBB). The BBB is set to wind up the CBIL schemes by 30 September as originally outlined by the government. This CBILS scheme can be extended at the BBB’s “discretion,” but so far no announcement has been made even though many have asked for an extension.
Rieche adding lending to UK SMEs would “probably fall off a cliff” if and when government guarantees are withdrawn.
“I think it would be very wrong to close the schemes and not extend them for another few months until more certainty comes back on how the winter and fall evolves,” he said.
The comments came as Iwoca announced it had raised £100m from undisclosed investors to lend out under the CBILS. Iwoca is an online business lender that sources capital through wholesale markets to then lend out.
Rieche is calling on banks to partner with fintechs like his to help get cash to as many small businesses as possible before the CBILS ends.
“Lets as an industry really work together, banks and fintechs, to serve small businesses in this really precarious situation,” he said.
Many of the new fintech loan providers and new banks have struggled to access funding to allow them to take part in government support schemes. Tide, a startup business bank, was forced to withdraw from the Bounce Back loan programme after failing to secure cash.
Rieche said raising any cash for Bounce Back loans was “mission impossible” because of their guaranteed low interest rates. He said there as “decent demand in the market from institutional real-money investors” to fund CBILS, which carry a higher interest rate.