Government’s Covid-19 support for SMEs must look beyond pillar banks
Alternative lenders should be included alongside the pillar banks as channels for the expansion of the government’s lending support for SMEs that is urgently needed, according to Linked Finance, Ireland’s leading peer-to-peer (P2P) lending platform. The company says that it is vital to ensure funding is deployed rapidly, and that this will be helped by leveraging the strong SME relationships held by several non-bank lenders.
The government’s existing Capital Guarantee and Covid-19 Working Capital Schemes are well-intentioned but not delivering at the scale required. By the end of last week only €11m of the €200m first tranche allocated under the Covid-19 Working Capital Scheme had been awarded, with just 56 companies having loans approved over 7 weeks since its launch on March 10th.
On Tuesday Linked Finance’s chairman Michael Cawley wrote to the Minister for Finance Paschal Donohoe TD to outline the company’s concerns and request a meeting to discuss how SME lending supports can be improved.
Linked Finance believes the current approach is not working because on the demand side, the administrative burden required of firms to qualify is excessive. On the supply side, the extent of Government guarantees is insufficient for lenders to be willing to deploy capital given the extent of uncertainty out there.
The UK government earlier this week announced plans to offer 100% guarantees for emergency loans to SMEs up to £50,000 (c.€57,000). The UK has also accredited the leading P2P lender – Funding Circle – under their Coronavirus Business Interruption Loan Scheme to work alongside the traditional banks to deploy capital.
Niall Dorrian, chief executive of Linked Finance said:
“The clock is ticking for Irish SMEs and it’s vital that the government moves quickly to expand the lending support it can provide. Alongside an expansion of capital guarantees should also be the broadening of the channels through which funds are offered to include lenders like Linked Finance. We have the intimate understanding of, and relationships with, SMEs to ensure that funds are deployed rapidly and to the right place.
Across Europe we are seeing governments providing much higher levels of support than is available in Ireland, which in the short-term will play a crucial role in getting the wheels of business turning again as those countries emerge from the current lockdown phase of the crisis. Ireland needs to ensure that it too is similarly well-placed.
There is a danger that understandable efforts to ensure public money is not misspent, have created layers of complexity that destroy the value of the schemes currently in place. Now is the time for a forceful and wide-ranging response to support an SME sector that provides over two thirds of the jobs in our economy.”
Linked Finance has worked closely with its existing borrowers since the crisis hit to help them address difficulties, for example giving an automatic two-month payment break for all borrowers in the hospitality sector, as well as three month breaks to borrowers who requested it. It has also introduced a new “Deferred Start Loan” that allows SMEs to borrow up to €100,000 for 15 months, but with no capital or interest payments in the first 3 months of the loan.
Since its launch in 2013 Linked Finance has provided loans totalling over €133m, for more than 2,500 ambitious local businesses in every county of the country.