- Pressure grows for British Business Bank to remove restriction
- Everyday investors treated unfairly, industry claims
- P2P lenders deterred from participating as a result
The British Business Bank (BBB) is under mounting pressure to explain why retail investors cannot participate in the coronavirus business interruption loan scheme (CBILS), as industry stakeholders argue that ordinary people are being treated unfairly.
Retail investors are not allowed to fund loans that are part of the emergency scheme, which offers an 80 per cent government guarantee on the value of loans to small businesses to support them during the pandemic.
Accredited peer-to-peer lender Funding Circle has temporarily paused all non-CBILS lending to concentrate on supporting the government programme until further notice, meaning that retail investors are now unable to fund new loans via its platform. The only other accredited P2P lender, Assetz Capital, has kept its non CBILS products available, meaning that retail investors can still fund other loans on its platform.
The state development bank did not explain why retail investors are exempt from CBILS. It is understood to have deterred some P2P lenders from applying for accreditation under the scheme, potentially shutting off further routes of supply.
P2P property platform Proplend last month abandoned its plan to offer a CBILS Innovative Finance ISA (IFISA).
“We applied as a CBILS lender, promoting the coronavirus business interruption loan IFISA concept along with institutional funding,” said chief executive Brian Bartaby.
“But following discussions with the BBB we dug deeper into the detail of the scheme and decided that it was something that Proplend would not proceed with.
“Allowing individual investors to participate in CBILS via their ISA wrappers would have provided them with much-needed income, at a time when bank interest rates are at historic lows.
“The fact that it’s 80 per cent government backed would have been a nice kicker for investors. On paper it seemed a win win solution.”
A RateSetter spokesperson said the platform would take a close interest if CBILS were opened up to accept retail money. Retail investment makes up the vast majority of RateSetter’s funding.
Stuart Law, chief executive of Assetz Capital, said the platform did not ask why there is a block on retail involvement but maintained that there are wider benefits for everyday investors regardless.
“It is a rule from the BBB that everyone is following,” he said. “Retail investors would generally benefit from the reduced economic impact as a result of CBILS introduction, as would everyone else in the country.”
But Neil Faulkner, of P2P analysis firm 4th Way, said it makes no sense that the banks are allowed to benefit from government-backed funding while retail investors are not.
“By locking out retail lenders now, the government is continuing to treat ordinary people unfairly,” he said. “The banks simply have too much power over the country and its elected representatives.”
John Cronin, analyst at brokerage Goodbody, agreed that the policy was unfair in some ways but suggested there may be valid reasons.
“At one level it is completely unfair – unequal treatment, denying retail investors the opportunity to secure potentially lucrative return opportunities in the long-run,” he said. “However, the CBILS rules have likely been designed in that manner for a few compelling reasons: CBILS loans are interest-free for the first 12 months, which means such an investment product is unlikely to be deemed attractive by the vast majority of retail investors.
“Retail investors can obtain exposure via self-invested personal pensions and self-administered personal pensions in any event.
“It could slow the process down as it may take longer for accredited lenders to assemble a pool of retail investors in certain cases and these are high-risk loans so the Treasury may have been keen to minimise risks to retail investors.”
The BBB has been contacted for comment.