Life after BBLS: What must come next


min read

Life after BBLS: What must come next

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The launch of the Bounce Back Loan scheme was a watershed moment for hundreds of thousands of SMEs across the country. It gave them what they craved — small loans straight into their bank account, with maximum speed and minimum fuss.

For many SMEs, this was the first time they had managed to get financial support. Industry data shows that the stock of loans for firms with turnover of under £2m rocketed by 74 per cent in Q2, while for medium-sized businesses it increased by just 14 per cent. This discrepancy highlights the huge level of support for smaller businesses through Bounce Back Loans, but also indicates that a significant number of these small firms had either not been able to, or chosen not to, take on external finance previously.

Having spent years working with small and micro-businesses, I’ve come to understand this problem acutely, so it was no surprise to me that once the doors were swung open through this scheme, that applications would come flooding in.

The success of the scheme should serve as a wake-up call for everyone in the finance industry. For too long, small and micro-businesses have been neglected by the high street banks. This is less due to a lack of interest from these lenders, but more because they have neither the systems nor the capacity to serve smaller businesses while managing risk effectively.

Many of these firms don’t have the necessary financial forecasts, trading history or collateral for larger banks to be able to judge their creditworthiness. This was most clearly seen in the early days of the Coronavirus Business Interruption Loan scheme, where lenders struggled to cope with the demand from SMEs who required quick access to small loans to tie them over as their revenues tumbled.

With the chancellor announcing that applications for the Bounce Back Loan scheme will close on 30 November, the industry mustn’t go back to business as usual. These small businesses can’t afford to wait weeks for a response from their banks and will still need financial support to adapt to the new environment and play a role in driving the country’s economic recovery.

Bounce Back Loans proved that small and micro-businesses had the appetite to take on funding; they just couldn’t access it before, because traditional lenders didn’t have the capacity to serve them. However, in recent years a number of fintechs have entered the market with the primary focus of supplying finance to these smaller businesses. The sticking point is that the main high street banks are still so dominant in the market, and SMEs will approach them first for finance, even when it’s not the best choice. The real risk here is that when these businesses are then rejected for finance by the larger institutions, they lose confidence and decide not to try elsewhere.

If smaller businesses are going to be able to access the finance they need, then fintechs need to be given a greater opportunity to do what they do best. There are encouraging signs: the government has announced a review, led by the former chief executive of Worldpay Ron Kalifa, into how the fintech industry can be strengthened; and a number of fintechs have been awarded grants from the Banking Competitions Remedies fund to create products to make it easier for small businesses to access funding. The formula is simple: a booming fintech industry equals a booming small business sector.

As we look towards 2021, there are three key issues which need to be addressed to help achieve this.

First, we need to ensure that non-bank lenders have the support of regulators to access capital on competitive terms — just as large banks can — to support small businesses as the government-backed loan schemes wind down. Non-bank lenders play a critical role in the industry to provide finance to businesses that are not served by the banks, but without capital they won’t be able to do so.

Second, there must be a greater level of industry cooperation through the Bank Referral Scheme so that businesses can reach out to a range of lenders to give themselves the best chance of accessing finance.

The Bounce Back Loan scheme attracted more than one million businesses, many of whom will be returning to their bank to request additional funding. But without the government guarantee, these banks may not be so forthcoming. The industry needs to make the journey as simple as possible for businesses to reapply through another lender. And in order to grease the wheels of the system, businesses should automatically be made aware of the Referral Scheme if they don’t receive a response from a loan enquiry within two weeks.

Third, Open Banking has the potential to change the face of SME lending. Incessant form-filling can be replaced by a fast and frictionless process where businesses can be approved for finance instantly. But despite these clear advantages, there remains some scepticism and frustration within the SME community. There should be a concerted effort from the finance industry, business groups and government to promote the clear benefits of Open Banking and build up trust among small businesses looking to use it.

The Covid-19 pandemic has exposed the cracks within our ecosystem of small business support. Bounce Back Loans managed to paper over these, but we now have an opportunity to fully address these weaknesses, and give SMEs the brighter future they deserve.


Christoph is CEO and co-founder of iwoca. He oversees day-to-day operations, finance and strategy, always with an eye on the long-term vision. Following a degree in Management from HEC Lausanne and the London School of Economics, Christoph went on to become a VP at Goldman Sachs where he advised corporate and institutional investors on risk management.

Article updated on:
October 15, 2020

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