Niche lenders call for parity
SMALL businesses will lose access to the billions of funding that specialist lenders provide unless the Government steps in, finance sector chiefs warn.
Non-bank lenders are to meet Treasury officials this week for talks aimed at securing the same loan guarantees the Government gave the big banks at the start of the pandemic. They also want access to the ultra-cheap funding the Bank of England provides the big banks with.
Stephen Haddrill, director general of the Finance & Leasing Association (FLA), warned that without both, the supply of credit that alternative lenders provide small to medium-sized enterprises will become constrained. “Non-banks are stretched between providing forbearance, satisfying the people they get their funding from, and trying to satisfy demand for new lending,” he explained.
“In terms of a crunch point when non-bank lenders are not able to offer new lending, with some of them you are not far off.”
Last year, FLA members provided £140.3billion of new credit to companies and households, of which around £36billion went to businesses and the public sector. The vast majority was lent to consumers.
Specialist consumer lenders
NEARLY half of small businesses have had to raid their savings to stay afloat during the coronavirus pandemic, according to Redwood Bank. It estimates as much as £22.4 billion has been withdrawn from corporate deposit savings accounts by senior executives and owners of small to medium sized enterprises (SMES) to pay bills.
Redwood added that if the country remains in lockdown, 23 per cent of SME owners and managers expect to have to withdraw more money from their business savings to continue to pay the bills.
Garywilkinson, chief executive and co-founder of Redwood, said: “With no or little income, many are desperately trying to stay afloat and have had to tap into their savings to pay costs and keep going.” also want access to cheap Bank of England funding to help them cope with having to provide forbearance to borrowers. Without it, they will have to hike the cost of loans, which will hit those on low incomes and potentially drive them into the arms of unregulated lenders.
Consumer Credit Trade Association chief executive Greg Stevens said: “Specialist lenders like my members are at a huge disadvantage, they cannot access the near-free Government funding facilities available to the banks. As a result, they have significantly higher costs of capital, which pushes up borrowing costs for customers.
“The Treasury needs to get real. It cannot insist on extended six-month ‘payment holidays’ on the one hand, without helping lenders get access to funds for lending on the other. Otherwise, how on earth are lenders going to be able to afford six-month payment holidays?”
On Friday the City regulator, the Financial Conduct Authority, ordered lenders to extend loan repayment deferrals for another three months, until the end of October, to help borrowers struggling due to the pandemic.