We need more imaginative thinking from the Treasury to help support SMEs, writes John Davies, founder and executive chairman of Just Cash Flow PLC and chairman of the Association of Alternative Business Finance.
Image source: Julian Schiemann / Unsplash.
Have FinTech lenders been completely sidelined? This is the question I ask myself after reading the ‘enlightened’ weekend reports that the big banks weren’t ready to play ball with the Treasury and facilitate access to crucial funding. of the Bank of England.
While the big banks have access to almost unlimited cheap finance through the Bank’s term finance program at an interest rate of almost 0.1%, the majority of FinTechs use the capital markets.
The idea was to have the big banks act as intermediaries to channel the term of cash financing to FinTechs / alternative lenders.
Apparently, this plan was rejected by the big banks due to “business challenges” and their inability to make it work in terms of profitability.
I’m not at all surprised, because why would established banks want to help more nimble and nimble competitors, better positioned to use new technologies that will lead to better informed lending and have higher customer satisfaction scores? , that is, those who are. go eat their lunch.
The government and the Treasury were quick to put in place a series of measures (CBILS, BBLS, etc.) that provide much-needed funding to help SMEs cope with the COVID crisis.
However, the reason I am asking the “Have FinTech Lenders Been Shunned Completely?” The issue is that despite repeated pressure from a wide range of business associations, including the Association of Alternative Business Finance (AABF), the Treasury is unwilling to provide access to the funding that FinTechs urgently need. to support existing customers and new loans.
Financial markets tend to tighten during a crisis, which poses a short-term problem for FinTechs. Cash Knows this, but after weeks of deliberation it appears he is not ready to directly help an industry that focuses on supporting SMEs – something that after COVID-19 will be desperately needed.
There is a huge irony here because the UK’s vibrant and diverse alternative lending industry arose out of the 2008 financial crisis as the big banks were either unwilling or unable to lend to SMEs. This has accelerated the trend of large banks to abandon services to small businesses. This has been demonstrated by the demise of branch business leaders, the centralization of business banking services in remote call centers, and a focus on meeting lending goals by dealing with larger companies. It is much easier to make a loan of £ 1million than it is to loan 50 for £ 20,000.
This is not a criticism because the banks have to turn many plates and have shareholders to satisfy. However, I have always believed that the big banks and alternative lenders complement each other because businesses need different levels of support when they start, invest and grow.
The government has been talking a lot about encouraging challengers at big banks and one of the main drivers of this has been the desire to see increased competition and choice for both consumers and businesses.
The old saying goes ‘talking is cheap’ and I can’t understand why the Treasury doesn’t have the foresight to support the very FinTechs that have invested in the technology and expertise to support S in SMEs. The same businesses that will be needed to help the economy recover and generate tax revenue in the future.
You might think that the big banks will change their minds and strategy and suddenly say “let’s put the business leaders back in the branches, let’s focus on these little financing facilities (even if it’s not profitable for them). us to do so) “.
I wouldn’t hold your breath and it doesn’t have to be because there is a different strategy the treasury could pursue.
Creative and thoughtful proposals have been submitted that can work within the existing treasury and British Investment Bank structures. They absolutely recognize the duty of care of both agencies when dealing with taxpayers’ money.
The following quote from a Treasury spokesperson appeared earlier this week in AltFi cover on this topic:
“Alternative lenders and challengers banks are essential in providing credit to SMEs, which is why we will continue to work with non-bank lenders to support their participation in our lending programs.”
This could be described by many FinTechs as a bit dishonest because, while it is true that some FinTech lenders have been approved, no access to finance has been provided.
If it is recognized that FinTechs have a “ vital ” role to play, why not facilitate the provision of finance at competitive prices so that the sector can work in tandem with the big banks in providing the support including SMEs? will need to exit this crisis?
SMEs will have to face a mountain of debt as well as the considerable challenges of adapting to a post-crisis world. Imaginative proposals are made regarding massive debt cancellations. Whether it flies or not, I don’t know, but this is exactly the type of imaginative thinking that is needed.
There are many challenges ahead and the Treasury has moved quickly in many areas – why sideline FinTech lenders?
John Davies is the Founder and Executive Chairman of Just Cash Flow PLC, and Chairman of the Association of Alternative Business Finance. The views and opinions expressed are not necessarily those of AltFi.
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