Innovate Finance, the fintech industry body in the UK, is lobbying the government for a role in the coronavirus loan scheme.

UK fintechs hope to reach coronavirus loans, introduced by the government as a business relief measure, to struggling businesses quicker than traditional lenders. They have approached the British Business Bank (BBB) for authorization to lend under the U.K.’s Coronavirus Business Interruption Loan Scheme (CBILS). (CNBC)

CBILS: Traditional lenders being too cautious

Larger authorized lenders are under fire for being slow off the mark in issuing the loans. They are also raising hurdles in the process.

According to Helen Bierton, Chief Banking Officer for Starling, challenger banks have an inbuilt technological advantage. That could serve well in the drive to disburse loans as soon as possible. They, therefore, have “a real opportunity here.”

In addition to 40 banks authorized for CBILS, digital lenders such as Starling, OakNorth, and FundingCircle have also secured authorization.

Unfortunately, these fintechs cannot process the loans pending completion of a “legal and operational setup” with the BBB.

Charlotte Croswell, CEO at Innovate Finance, the UK fintech industry body, said she looks forward to seeing more non-bank lenders become accredited lenders for CBILS.

According to UK Finance, banks have only approved 21% of CBILS loans so far.

“I’m not surprised that the clearing banks are struggling with speed and turnaround,” Ben Barbanel, head of debt finance at OakNorth, told CNBC. “They’ve always struggled with speed and turnaround.”

Across the Atlantic, fintech got a raw deal at the PPP

In the U.S., fintechs are disappointed with their limited role in lending Paycheck Protection Program (PPP) loans to smaller businesses.

The PPP is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. The Small Business Administration (SBA) will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.

The first tranche of $349 billion in potentially forgivable PPP loans ran dry within just two weeks. Even though Treasury Secretary Steve Mnuchin had promised fintechs a role in paying out these loans, the Small Business Administration (SBA) only allowed traditional banks to make these loans by the time the money ran out.

The SBA did authorize some fintechs but those approvals came too late.

On Tuesday, the Senate approved a bill for additional PPP funding of $310 billion. This included $60 billion for the really small businesses. Unfortunately, fintechs did not make it into the list of eligible entities named to lend out the new package.

Now, it’s a moot point whether fintechs will get to lend from the second PPP tranche. There is a huge volume of pending applications already with the SBA. Most, if not all of the money may, therefore, go to those in this “queue.”

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