The chancellor’s new Bounce Back Loan scheme will help deliver much-needed funding to small businesses but it is far from perfect, industry sources have suggested.
Small businesses will be able to apply for a 100 per cent government-backed loan of up to £50,000 to help them survive the Covid-19 pandemic.
The scheme, which has no repayments due during the first 12 months, will enable small businesses to access cash in a matter of days.
The 100 per cent government-backed loans followed calls for the government to raise its guarantee from 80 per cent in the coronavirus business interruption loan scheme (CBILS), in order to speed up the delivery of funds to struggling firms.
David Bradley-Ward, chief executive of asset-backed peer-to-peer lender Ablrate, said that the Bounce Back Loan scheme will clearly help small businesses.
But he poked holes in the scheme, suggesting that many banks will just lend the £50,000 with the full 100 per cent guarantee rather than risking 20 per cent of their balance sheet with CBILS.
Bradley-Ward added that the new scheme could threaten P2P platforms which write £50,000 loans.
“It’s brilliant for small businesses,” he said.
“But how are P2P platforms going to compete with a 100 per cent government guarantee?”
“In the spirit of competition and fairness, the British Business Bank should allow more P2P lenders to be accredited.
“If they don’t, it will create instability in the marketplace where one lender has an advantage over another, not by market forces, but the government.
“I’m hopeful most decent sized platforms will become accredited, otherwise there could be trouble for some platforms.”
Daniel Rajkumar, founder and managing director of P2P business lender Rebuildingsociety, said that it is a good initiative which will help many small businesses keep afloat, but warned that many firms will face higher costs than £50,000.
“How helpful these funds are depends on the type of business you are,” he said.
“The government needs to take an industry by industry approach. For example, tourism will effectively lose a season.”
Charlotte Crosswell, chief executive of fintech trade body Innovate Finance, welcomed the scheme.
“We hope it will help address the issue of the speed of loan distribution,” she said.
“We have been urging the British Business Bank to expand the list of accredited firms, to take advantage of the quick decision and distribution methods offered by fintech lenders.”