Editor in Chief (interim) AccountingWEB
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Covid loans disrupt the lending landscape

So far, £53.2bn of the £350bn committed to government-backed loans has reached UK businesses struggling with the effects of the Covid-19 pandemic.

19th Aug 2020
Editor in Chief (interim) AccountingWEB
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The weekly Treasury figures detailing the number and value of loans applied for under the various loan schemes show that by 16 August 60,409 small and medium-sized firms had successfully applied for loans under the Coronavirus Business Interruption Loan Scheme (CBILS) – still less than 50% of the 122,885 that had applied for support.

Bounce Back loans lead the way

As was the case since the Bounce Back Loan Scheme (BBLS) was introduced in early May, the easier access loans for SMEs ranging from £2,000 to £50,000 have been the star performer in the government’s coronavirus loan portfolio, accounting for two-thirds of funds lent (£35.5bn).

Another 516 larger companies have gained approvals for £50,000+ loans under the large firm loan scheme (CLBILS), totalling £3.5bn, and another £588m has gone to 590 high-tech companies under Future Fund loans scheme.

The key feature of CBILS and BBLS is that the no repayments are due for the first 12 months of the loan, during which time the government will also cover the interest repayments.

Bounce Back loans are administered through the borrower’s usual business bank, while the CBILS are available through a wider range of lenders, but with more conditions and bureaucracy involved. There was a flurry of rumours this week that the CBILS application date would be extended, but clarification has now come from the British Business Bank overseeing the scheme that the extension applied only to lenders – not applications from business.

The extra time will allow lenders to work their way through application backlogs instead of having to cut off open applications at the end of September, advised Mat White, head of accountant relations at iwoca. “If your clients are considering CBILS, don’t become complacent… Make sure they start their application before 30 September.”

Fintechs come of age

The role of online finance providers has come into focus during the Covid-19 pandemic as traditional banks struggled to keep up with the demand for the government-backed loan schemes.

After what online finance marketplace Capitalise.com described as “a bumpy start”, the CBILS project is picking up speed, but still lags behind the mechanisms in countries such as Germany and Switzerland, where 100,000+ businesses have got their hands on loans, according to Ollie Maitland, chief product officer at Capitalise.

“When we compare lending patterns of traditional banks versus alternative lenders, it is clear that traditional lenders are slowing the process down. After analysing trends of loans granted via Capitalise.com, we found that on average, the big four banks take an average of 46.8 days to pay - compared to 17.3 days on average from alternative lenders,” Maitland reported.

According to Innovate Finance, fintech providers make up about 30% of small and medium-sized business lending and have come to the fore as demand surged for CBILS and BBLS. “Traditional lenders lack the manpower and technology to be able to run the required due diligence at speed, with many banks applying their usual lending criteria which can make it harder for smaller enterprises to qualify during lockdown,” he said.

Like other lenders and advisers such as Swoop and Rangewell, Capitalise.com is calling on accountants to play their part in funnelling much-needed funds to struggling businesses. Advisers can help businesses improve their chances of securing loans by assembling the right reports and figures to support their applications and making them “as easy to approve as possible”, Maitland said. “An accountant will be able to weigh up the applicant’s circumstances and any existing relationships with financial providers to make an appropriate recommendation.”

At the same time, a responsible adviser will also ensure the client thinks through the long term implications before taking out a loan so they can handle the repayments when they ultimately fall due.

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