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Non-bank lenders have been told that they will not be given access to cheap finance from the Bank of England in order to deliver emergency government loans.
In a blow to companies that have struggled to get state-backed finance to help them survive the Covid-19 pandemic via mainstream banks, it is understood that the Treasury has informed the fintech industry that it will not be given low-cost funding from the central bank.
Non-bank lenders have been accredited to provide the government’s bounce-back loan scheme, which provides a state guarantee in order to encourage the provision of credit to small and medium-sized companies.
However, some fintechs say that they have struggled to secure the funds they need to provide the loans.
Last week almost 70,000 small businesses hoping to secure a bounce-back loan had their hopes dashed after Tide, which provides financial services, said that it could not secure the funds. The bounce-back scheme, which has underwritten £30.9 billion of credit, provides lenders with a 100 per cent guarantee on loans to small companies, with the interest rate fixed at 2.5 per cent.
Tide said that it had frozen lending because third-party funders would not support the scheme, partly due to concerns that the low interest rate would make it impossible to make a return.
Innovate Finance, the trade body for financial technology companies, is among those that lobbied the government to back a structure that would provide cheap wholesale finance.
Last month the government consulted on a model under which commercial banks would pass on cheap finance from the Bank of England to non-bank lenders. The Times understands that the government has rejected the idea, concluding that the low interest rate would still make it too difficult to work on commercial terms.
However, at the request of lenders the British Business Bank will be allowed to assign the taxpayer guarantee to third parties in order to encourage them to provide finance to non-bank lenders. This was in response to concerns that another obstacle for prospective funders was the fear that if a non-bank lender they had supported went bust, they would not be able to access the guarantee.
Charlotte Crosswell, chief executive of Innovate Finance, said: “More non-bank lenders are now accredited and delivering Covid-19 emergency funding. However, once accredited, [lenders] then have to secure wholesale funding, and this can result in challenges for the sector. Other countries have taken a different approach and granted access to central bank funds to expedite loans through fintech. As lockdown eases we urge policy makers to recognise the pivotal role [fintech lenders] play in providing the country’s small businesses with the vital financial lifeline they need to get back on their feet.”