Funding the Future: Supporting a diverse credit market

Businesses come in all shapes and sizes, and the UK’s credit market is uniquely placed to offer them a range of credit options to meet their respective needs. From simple loans to hire purchase and leasing, each funding avenue plays a crucial role.

What sets the UK credit landscape apart is the active involvement of independent non-bank providers, which serve as a key source of funding for small and medium-sized enterprises (SMEs) and often bridge the gap for underserved groups, including non-prime customers.

Non-bank funders were particularly crucial in helping in deploying initiatives like the British Business Bank’s Recovery Loan Scheme (RLS) after the pandemic. This was despite facing major liquidity challenges on the wholesale markets at the height of the COVD restrictions. The RLS was critical in supporting many businesses and allowing them to survive and in some cases thrive in recent years.

The RLS essentially provided a government guarantee for a portion of the lending, reducing risk for funders and delivering much needed funds for businesses seeking to grow. But RLS is a time limited intervention, and attention must now turn to a permanent successor.

We’re calling for a Business Finance Growth Guarantee to replace it. This would be a permanent scheme, providing certainty for our members and for the businesses seeking funding eligible for the scheme. This would be largely based on the RLS but with changes to reflect the different risk and economic environment now present.

Such a scheme should also help to alleviate the challenges of achieving net zero with a special green variant. This would enable lenders to fund green assets that are outside of their risk criteria due to a lack of a secondary market or residual value data.

Finally, to prevent another liquidity freeze we’re also calling for an emergency warehouse liquidity funding scheme. This would also be modelled on existing schemes, such as British Business Investment’s mezzanine and senior debt programmes, with a top-slice guarantee for wholesale funders in the event of a widespread interruption to normal business. This would protect small businesses and ensure funders can offer their full support during future crises.

To find out more about our proposals, please click here.

Published 04 Aug 2023