More than 110 banks and non-bank lenders have been accredited to offer the coronavirus business interruption loan scheme (CBILS) to date. But borrowers are starting to realise that the loan terms can differ significantly from lender to lender.
So we’ve taken a closer look at the CBILS rates and services which are being offered by non-bank lenders – and how they compare to traditional banks…
CBILS was introduced to help small- and medium-sized enterprises (SMEs) to survive the economic ramifications of the coronavirus pandemic. The scheme was recently extended until 31 January 2021, and until then, any SME is entitled to apply for a CBILS loan up to the value of £5m, with interest rates capped at 14.99 per cent, and interest fees waived for the first 12 months of the loan.
However, lenders are not required to offer loan facilities for as much as £5m, and they can set their own interest rates, which the taxpayer will cover for the first year of the loan.
According to data from the British Business Bank (BBB), the government paid £65.7m in interest to both CBILS and BBLS lenders between April and June, at an average rate of 5.1 per cent – far below the 14.99 per cent threshold set for lenders CBILS lenders.
A recent Sunday Times article claimed that some lenders are charging the maximum interest rates, and singled out non-bank lenders for charging the highest CBILS rates.
Specifically, the article named alternative lender (and former P2P lending platform) ThinCats as one of the higher-rate CBILS lenders, charging rates of between six per cent and nine per cent, plus a two per cent arrangement fee.
Peer2Peer Finance News’ own research has found that among the clutch of P2P lending platforms which have been authorised to offer CBILS, interest rates range from approximately 1.8 per cent, to 8.65 per cent.
Meanwhile, banks such as HSBC are advertising CBILS rates of between 3.59 per cent and 4.1 per cent.
So why are alternative lenders charging more for their CBILS facilities?
There are a few reasons for this. Firstly, banks entered the scheme with a major advantage. Unlike alternative lenders, banks have access to the Bank of England’s term funding scheme, which offers cheap access to financing, as a way of incentivising banks to do more lending. This drastically reduces the level of risk being absorbed by the bank on each loan.
By contrast, non-bank lenders must source their own funding from institutional investors – an expensive process that will likely be reflected in the interest rates on offer.
While 80 per cent of any CBILS losses will be covered by the government, the remaining 20 per cent will be the responsibility of the lender. This means that non-bank lenders need to conduct the most detailed credit risk checks possible in order to identify and rule out any potentially unviable businesses. These credit risk processes may also be costly.
On a loan-by-loan basis, it is a lot more expensive for a non-bank lender to participate in CBILS than it is for an established, high street bank, and this is reflected in the interest rates on offer.
But despite this, P2P lending platforms have been hugely popular with both new and existing borrowers over the past seven months.
That is largely down to the service and flexibility that they offer. Fintech lenders such as P2P lending platforms have an enhanced understanding of banking technology and its possibilities. Many of these lenders are able to use open banking and their own software capabilities to offer instant or near-instant credit decisions to applicants, versus a wait of hours or days for traditional bank applications.
Funding Circle has credited its instant decision technology with its CBILS success. Since it was accredited in May, Funding Circle has become the UK’s fifth largest CBILS lender, and Starling Bank has used the platform’s technology and reach to deliver £300m of its CBILS loans.
And despite the additional costs involved in offering these loans, most alternative lenders are doing their best to keep borrower costs down and to offer flexibility where possible.
Funding Circle offers loans of between £50,001 and £500,000, with rates of between 1.8 per cent and 7.4 per cent APR.
LendingCrowd offers loans for between £50,001 and £250,000, with rates from 5.6 per cent, and Assetz Capital offers “flexible repayment options including interest only” on its CBILS commercial mortgages, with borrower rates from 6.4 per cent.
Already this year, alternative lenders have shown a willingness to offer forbearance to borrowers, and to work with them to refinance during the pandemic. This has helped win over a whole new swathe of borrowers, who have raved about the world-class customer service, quick decision making, and easy access to finance that non-bank lenders can provide. And all for just an extra percentage or two per year.