Government support schemes need to leverage the entire banking sector including Fintech to save our SME's & Jobs

Claims for Universal Credit are now off the scale with 500,000 people having signed on in nine days. In the United States, the number is even starker with a rise in joblessness of 3.3 million in the last week, as the impact of Coronavirus and the lockdown begins to bite.

It is vital that the unprecedented multi-billion pound economic support package announced by the Chancellor and the Governor of the Bank of England reaches the businesses that need it - and in record time. Flattening the ‘recession curve’ and laying the foundations for the economy to recover is the defining challenge for Rishi Sunak.   

Yet, whilst the government has stepped up and provided a fast response, the banking system does not appear ready or able to do the same. This is particularly the case for small and medium sized enterprises.  

From my experience - as a former banker and government minister - the same structural and technological challenges major banks faced serving SMEs before the last crisis remain true today. Banks tend to be branch-based and are not set up to process SME-type loans with speed online. A forty-eight hour turnaround for a yes or no decision is not uncommon, with funding made available in two to four weeks. And that is at the best of times. 

Financial intermediaries and markets are historically poor at allocating credit to small firms who need to be carefully assessed and new firms with no track record. And crises breed excessive caution; post the crash of 2008 lending to medium-sized businesses contracted at about 4 per cent a year, with a more pronounced effect among smaller businesses.

So to save our economy and for the Chancellor’s plan to work, we need to leverage the entire banking sector. Non-bank lending institutions need to be part of the solution as the United States is doing as part of its US$2T stimulus package. 

Ministers’ rightly make much of our world class Fintech ecosystem. Companies like Market Invoice, Fleximize and Funding Circle have already developed quick, accurate ways to evaluate borrowers’ ability to pay back loans.  

To boost the amount of lending to Britain’s SMEs and to increase the diversity, quality and resilience of the UK’s business lending sector, all specialist lenders should be accredited onto the Coronavirus Business Interruption Loan Scheme (CBILS). To recover, Britain needs a thriving tech sector, so organisations like Innovate UK and the Business Growth Fund should also be eligible for CBILS. In a world where government guarantees exist, not including all lenders in the scheme tilts the playing field in favour of large institutions. 

In the US, the Federal Reserve is lending to some SME institutions. Why can’t the Bank of England do the same? 

As currently set up, too many businesses fall through the cracks because they are either too large for the CBILS, with loans of up to £5M, or too small for the Bank of England’s scheme, which is for large corporates with a good credit rating.

The government cannot support every business for an indefinite period. Time is of the essence. No other country has the depth of technology available to the UK in financial services. Now is the time to fully harness its potential.