The government-backed Coronavirus Business Interruption Loan Scheme (CBILS) has seen lenders lend nearly £20billion to over 80,000 businesses amid Covid-19. The scheme – one of several state-backed packages – launched on 23 March last year and saw the government guaranteeing 80 per cent of loans up to £5million to SMEs.
While initially criticised for the slow pace at which banks processed loans to Covid-hit companies,The Fintech Times has spoken to CBILS accredited fintechs who think the scheme has been a crucial lifeline for bloodied businesses.
Exponential business failures without state-backed loans
Paul Elliott, head of business banking, Atom Bank, said: “Without government-backed guarantees we would have seen the drawbridges of lenders come up and wait for the storms to pass.
“Unfortunately, this would have resulted in an exponential business failure rate that would have dwarfed the figures we are seeing now and an incredibly swift and high unemployment rate.”
Yet CBILS has had its critics: from fintechs believing they were unfairly treated by the CBILS administrators and business owners angry at high-interest rates on the loans levied by some finance providers.
Meanwhile, questions remain about the spectre of millions not being paid back in debt in government-backed loans, a possible replacement scheme for CBILS, and whether banks will retreat from the market once the government-backed scheme ends.
How much fintechs have lent through CBILS?
OakNorth Bank said it has approved just over £590million through CBILS and sister scheme CLBILS (Coronavirus Business Interruption Loan Scheme), around a third of its total lending over the period.
Peer-to-peer lender Funding Circle said it had approved £1.85billion as of 15 November last year while Iwoca said it was on track to provide £300million when CBILS applications are expected to end on 31 March.
Nucleus Commercial Finance said it has lent over £150million to date and aims to lend £200million by the end of March while Market Finance said it expects to have lent between £200million and £250million when CBILS ends.
Atom Bank said it had lent £340million across 506 applications while ThinCats said it expects to have lent around £250million through CBILS by the time it closes, around 75 per cent of this supporting new borrowers.
Ultimate Finance, meanwhile, said it had hitherto lent around £35million and expects to lend between £60million and £65million if applications for CBILS end at the end of March.
Has CBILS been a success?
Of the fintechs spoken to, the consensus is CBILS had been handled well by the British Business Bank in difficult circumstances and proved an important lifeline for businesses.
Early criticism from fintechs about CBILS focused on the time it took some to get CBILS approved and also that they were shut out of Bank of England (BoE) funding accessed by traditional banks.
Some business customers, meanwhile, have been angered by the interest rate gap on the loans set by new finance providers compared to high street banks.
Lenders’ interest rates over 10 per cent
With CBILS, lenders can set their own interest rates, up to a maximum of 14.99 per cent. For example, ThinCats has a CBILS interest rate of between six and nine per cent, plus a two per cent arrangement fee while Merchant Money had a rate of more than 13.5 per cent and Lending Crowd more than 11 per cent, according to The Sunday Times.
These lenders said they have to charge more as they don’t have access to the Bank of England’s term funding schemes, which allows high street banks to borrow near to the Bank of England base rate of 0.1 per cent.
OakNorth and Atom declined to give details of their rates to The Fintech Times, saying it varied customer to customer.
Cases of CBILS fraud and defaults
The haste with which millions of pounds was lent out to rescue firms had led to concerns about fraud and defaults.
Nucleus Commercial Finance CEO Chirag Shah said CBILS had been successful but added a note of caution, saying “the downside is that businesses are highly levered and once things start opening up, many will struggle to repay debt and manage creditors.”
As of October last year, according to Action Fraud, the national reporting centre, it had received 176 reports that mention at least one of the following terms: CBILS, BBLS, Bounce Back Loan, Coronavirus Bounce Back and Business Interruption Loan.
Of these reports, 95 are crime reports and 81 are information reports, with loses, which haven’t been verified, attributed to the reports of £17.5million.
Accredited CBILS fintechs say defaults are more likely to be on loans dished out through the Bounce Back Loan Scheme (BBLS), which are 100 per cent state-backed with lighter checks carried out on the suitability of borrowers than usual.
A spokesperson for ThinCats said: “One of the key differences between BBLS and ThinCats CBILS is that our CBILS loans have been through a full credit and underwriting process to assess affordability with the usual due diligence.
“As the loans are not 100 per cent guaranteed this has created an incentive for lenders to approach the CBILS loans in a similar way as for their regular loans.”
According to the National Audit Office, taxpayers could lose as much as £26bn from fraud, organised crime or defaults through the BBLS.
Fraud exists across all government-backed schemes
One legal expert said fraud existed across all government stimulus schemes.
Sam Tate, RPC’s head of white collar crime, said: “Fraud exists across all Covid-19 related government stimulus schemes. The pace at which loans were deployed to businesses has resulted in high levels of fraud.
“In particular, the BBLS subjected applicants to less onerous checks and therefore it has been targeted by criminals, often via identity theft to form bogus companies and claim funds.”
What follows CBILS?
CBILS has already been extended twice, with the deadline for applicants now March 31.
The chancellor has announced that a successor scheme will be announced in due course, with more details being disclosed at the Budget on 3 March.
Nick Lee, head of regulatory affairs, OakNorth, believes a mix of the Enterprise Finance Guarantee (EFG) scheme, the scheme which CBILS is based on, and CBILS could replace CBILS.
The differences between the EFG scheme and CBILS include government support was 75 per cent under EFG and is 80 per cent under CBILS and more sectors could apply for CBILS.
Lee said: “It is probably a public policy question. We believe there definitely is the need for something. Whether it is just a roll of the CBILS to end of June. It needs to tally when lockdown may be released.”
After that, Lee said there was space for an ‘EFG-plus scheme’.
Lee said OakNorth had been talking to trade body Innovate Finance about a possible successor scheme, with ideas being fed into The Treasury.
Will lending be in rude health following Covid-19
Many of the fintechs The Fintech Times spoke to said they expect to see “strong demand” from SMEs post-CBILS.
Atom Bank, for instance, like others, has continued to do non-CBILS lending alongside CBILS lending.
Elliott said: “We’d loaned just under £250million to UK SMEs before we started lending under CBILS. We’re expecting to add another £50million of non-CBILS lending by the end of our financial year in March 21.”
But the Iwoca CEO struck a note of caution.
Christoph Rieche, Iwoca CEO said: “Once the government schemes wind down there is a risk that banks retreat and potentially leave a material void in the market.
“Cash-flow will become an even bigger challenge for businesses than it has been pre-Covid.”
On downsides to CBILS?
Market Finance CFO Tom Stenhouse said the stop-start nature of CBILS (which has twice been extended) had likely been to the detriment of some fintechs, causing interruptions to their lending.
Stenhouse said: “That tends to help more incumbents. If you are a bank and have your own balance sheet, whether it’s stop or start, doesn’t matter so much. You still get access to funding.
“You’re just then lending with a government guarantee or you’re not. And you just price appropriately.
“For the fintechs, I suspect some will have struggled. The stop-start nature of that will have had an impact.”
On possible CBILS defaults and fraud cases?
Funding Circle said: “While BBLS loans are 100 per cent guaranteed, CBILS is only partially guaranteed and therefore requires all lenders to conduct a full and stringent credit assessment on each loan.
“We also conduct full fraud checks in addition to adhering to the British Business Bank’s fraud guidance.”
On follow up scheme to CBILS?
Josh Levy, Ultimate Finance CEO, said: “I am confident they are thinking about the right ways to improve it.
“What they have done very well, the British Business Bank, through trade associations is take feedback and have been open to suggestions and open to critique of the current scheme. And that as a lender is all we can really ask. To have a voice, I think is powerful.”