"Getting the next stage of the scheme’s lifecycle right is critical to protect the tarnished reputations of lenders, and the increasingly fragile government ratings."
As small and medium sized businesses were forced to close, the Chancellor put measures in place to support them through lockdown, to enable them to pay for things like rent and staff costs, as well as making their premises Covid-secure for staff, visitors and customers.
At the time the scheme was launched and the first loans were issued, no one could have predicted the path of the novel coronavirus, and its impact on the UK and the world. Many people understandably went into panic, and previously solid, established and financially stable companies would have sought additional reassurance by accessing the loans available via the scheme.
As it stands 1.3m loans have been issued, with a total value of over £40bn at an average of £30,000 per loan. Not an insignificant amount of money and administration challenge to go with it. With just six months left before BBLS customers will need to start making repayments, the scheme, the government and the lenders will be under more scrutiny than ever.
Lenders had just about recovered from the beating their reputations took in the global financial crisis of a decade ago. Now, they will be further under the microscope, especially as the BBLS is funded by the public purse. Getting the next stage of the scheme’s lifecycle right is critical to protect the tarnished reputations of lenders, and the increasingly fragile government ratings.
Add to this challenge the fact that up to £26bn of the funds loaned to SMEs in the UK via the scheme is expected to be fraudulent or subject to payment defaults and the size and scale of the challenge comes into sharper focus. Managing such a mountain of arrears in such a short space of time is likely to place a significant burden on lenders. Stress levels are already high, and increasing amongst SMEs, many of whom haven’t managed to recover from the initial lockdown, let alone cope with the second one. Handling the expected level of arrears, and handling them well, will be key to protecting lenders’ reputations.
So how can lenders ensure the Bounce Back Loan Scheme delivers good outcomes for borrowers and intermediaries?
1. Relationship building
Many BBLS borrowers will have taken out the loan from a lender which is different from their usual bank. Not all banks have been part of the scheme, and those that were placed limits and restrictions on the number of loans issued. And here lies the opportunity. BBLS lenders have the chance to build new relationships with these new business customers, using Open Banking to get complete visibility of their finances across different banks. By doing so, banks can create a more personalised, appropriate and accurate suite of services based on affordability and behaviour.
2. Realistic repayments
When setting up repayments for the BBLS loans in 2021, lenders should ensure a fair and responsible approach. Using Open Banking they can quickly and accurately assess SMEs for genuine affordability. By doing so, they will ensure that the agreed level of repayments are possible and that the business doesn’t spiral into further debt.
Such payment plans offer flexibility and can be adjusted quickly to reflect sudden changes in future circumstances. For example, Open Banking will enable the lender to see whether the business has been able to recover revenue levels and assess their level of debt owed elsewhere.
3. Responsible consumer-style approach
Many small businesses that have taken out BBLS loans are owned and managed by skilled blue collar workers, “one man bands” and hobbyists. This unexpected and sudden loss of income caused by the pandemic will have hit them hard. Their revenue isn’t just for shareholder dividends, or for reinvestment, it’s to pay household bills and put food on the table.
Because of that, many of those SMEs should indeed be treated as consumers. They should be offered forbearance and support measures, just as if the BBLS loan was a mortgage or personal loan. Lenders should be looking out for, and be able to spot vulnerabilities in such borrowers, to ensure they’re treated fairly and appropriately.
