UK Alternative Lenders Funding Delivery Performance to Small Businesses During COVID
Innovate Finance | Mike Carte | May 31, 2022
- Alternative Lenders were largely borne out of the Financial Crisis and had successfully built a market share close to 10% of the SME lending market prior to the onset of the Covid crisis.
- The Covid crisis was both a resilience test for Alternative Lenders and an opportunity to show whether the sector could help in delivering the solutions to the crisis
- Alternative Lenders delivered c.22% of Coronavirus Business Interruption Loans Scheme (CBILS) loans, more than double their pre-crisis market share – demonstrating their ability to deliver funding where it’s needed.
- In doing so they overcame a number of disadvantages compared to the big banks: a pricing disadvantage versus the banks (who had access to cheaper wholesale funding including the Bank of England’s Term Funding Scheme) and delayed accreditation to the CBILS scheme (where big banks had a head start in offering CBILs whilst Alternative Lenders had to wait in queue for British Business Bank approval to participate in the scheme).
- Alternative lenders have also led the way in lending to SMEs outside London and are playing a significant part in financing house building across the UK by small builders.
See: Fintechs to play an “even more important” role coming out of lockdown, says British Business Bank
- Looking forward, there are several significant challenges ahead for SMEs which will require increased levels of funding: higher energy costs and inflation, rising interest rates and the cost of reaching Net Zero. The Government also has ambitions for Levelling Up, which requires focused lending to under-represented SME Founders in every part of the UK. Where will this additional funding for SMEs come from?
- Alternative Lenders have been funding the growth in SME lending since the Financial Crisis. They continued to increase lending in 2021, at a time when gross lending by banks fell to the lowest since 2013, and they have shown they can deliver additional funding to SMEs where it’s needed. However, they themselves can be funding-constrained. The key policy Ask to help meet the upcoming financing needs of SMEs is an expansion of British Business Bank (BBB) wholesale funding and guarantee schemes for SME lenders.
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