Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a neowealth disruptor in Australia
In a surprising twist of fate, non-bank SME lenders in the UK look set to take a back seat when it comes to gaining market share from incumbents over the next 6 to 12 months, despite unprecedented demand from small business owners for emergency credit.
Last week, Tide, a non-bank lender that had signed up to the UK government’s Bounce Back Lending Scheme (BBLS), announced it would be withdrawing from the scheme, having failed to raise additional capital to keep lending.
To date the alternative lender has dished out around £50 million under the program, with the lender forecasting another £100 million of demand in its pipeline, thanks to its 150,000-strong customer base.
The BBLS scheme allows a lender to provide a six-year term loan from £2,000, to up to 25% of a business’ turnover. The maximum loan amount is £50,000, the entirety of which is backed by a full government guarantee against the outstanding balance of the facility (both capital and interest). As a result of it’s generous offer to lenders, the government has set the pricing bar low, at 2.5% per annum. It even covers the first 12 months of interest repayments, under its Business Interruption Payment (BIP) program.
At 2.5%, and with the scheme also eliminating access fees, the margins are incredibly tight for a non-bank lender forced to seek wholesale funding in order to participate. The government has so far ruled out providing funding for non-bank lenders like Tide, leaving it with no other option but to exit the program.
The decision is a real blow to the sector, and demonstrates yet again, how difficult it is to compete in a market where the power dynamics are so skewed. Given the speed at which non-bank lenders can shift cash to businesses, perhaps some banks will turn to their non-bank younger cousins, and form powerful distribution partnerships instead. That seems to be the only viable option on the table if the small fish, like Tide, wish to keep swimming.
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