Recent analysis of commercial loans has displayed that the pandemic appears to have had the effect of reversing years of growth among alternative lenders. This has led to the dominance of larger banks in the market share. According to the emergency Bounce Back Loan Scheme, there are £47.3bn worth of state-backed credit distributed to more than 1.5m companies. However, many non-bank lenders and small banks found it challenging to compete against access these schemes as they were not accredited to distribute these and the CBILS loans, and do not have access to cheap wholesale capital. Innovate Finance, the Fintech Industry body, has now called for a new wholesale finance scheme and for reduced capital requirements for small and medium-sized banks, saying rules designed to tackle risk-taking by large banks were hurting smaller lenders unless the government intervenes.
Source: The Times
The Startup Pack Comment:
The domination of the Government backed Bounce Back and CBILS Loans and subsequent emergency lending has inevitably led to these dominating the commercial finance market for SME’s over the last 18 months. What remains to be seen is what new, or resurrected, sources of finance will appear. Also many are of the opinion that there are going to be many SME borrowers who are going to seriously struggle to repay the loans that have been taken out. The prediction is that this will lead to defaults across the board amounting to £Billions with associated business failures. One thing is for sure: whilst this may be an opportunity for alternative lenders to get back into the market, loan rates will not remain anywhere near the level they have been at recently and guarantees will be back with a vengeance!