The UK’s Chancellor of the Exchequer, Rishi Sunak, has announced the launch of the Bounce Back Loans scheme for small- and medium-sized businesses (SMBs), per FinTech Futures. The fast-track finance scheme will allow lenders to extend loans with a 100% government-backed guarantee.

The SMB Lending Ecosystem

Loans will be between £2,000 ($2,485) and £50,000 ($62,146) and interest-free for the first 12 months; businesses can apply online through a short form and access the cash within days. The scheme aims to bolster the existing package of support available, including the Coronavirus Business Interruption Loan Scheme (CBILS), by letting SMBs get access to the finance they need immediately. Applications for the scheme will open on Monday, and firms will be able to access these loans through a network of government-accredited lenders.

Many in the industry are concerned that not enough alt lenders will be accredited to help facilitate the government loans — a disappointing repeat of the CBILS rollout. To date, only a few alt lenders have been accredited by the British Business Bank to provide funding under the CBILS. This has resulted in a number of alt lender industry bodies criticizing their exclusion, and with a consortium of fintechs even suggesting, in lieu of CBILS access, that the UK government provide £5 billion ($6.2 billion) for alt lenders to fund SMBs, using their digital solutions to distribute the loans before the end of April.

Following the slow delivery of the CBILS, the Bounce Back Loans scheme is set to operate at a large scale, covering most SMBs within the country under a tight schedule, aiming to provide finance “in a matter of days.” However, due to the £50,000 loan ceiling, a number of already accredited alt lenders, including OakNorth and ThinCats, will not participate. As a result, the new scheme risks falling into the same issues as the CBILS, namely that the funds will not reach the SMBs on time.

We think alt lenders should be included in the Bounce Back Loans scheme as their enhanced digital capabilities could allow the immediate distribution of funds to SMBs, which is the key aim behind the scheme. Alt lenders use technology to open access to lending, make it easier to onboard businesses and facilitate fund delivery. They are therefore able to efficiently and rapidly distribute government-backed loans to SMBs, which are in desperate need of cash injections.

The lack of alt lenders included in the UK government program mirrors similar complaints in the US, though PayPal and Square Capital among others were recently given the green light to participate in the US Small Business Administration’s emergency loan program. They will now be able to speed up loan distribution by leveraging their digital services, something which could also be unleashed in the UK by accrediting more alt lenders.

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