Government loans create broker lending capacity fear

19th February 2021

The volume of Government loans granted to help SMEs through the COVID-19 crisis will be having a potentially devastating impact on the availability of ‘traditional’ lending, causing alarm in the lender broker community according to new research by Allica Bank.

The Bank suggests that SMEs could be starved of funding to fuel future growth because lending capacity has all been tied up in coronavirus business interruption and bounce back loans (CBILS/BBILS).

The research found in its most recent commercial mortgage broker survey that more than eight out of ten (82%) brokers said they have seen a reduction in the supply of finance from business lenders, with more than half (56%) describing the reduction as ‘significant’.

Most of the commercial mortgage brokers surveyed think it is unlikely that banks and non-bank lenders will be able to meet the future needs of SMEs for a range of crucial financial products in 2021, especially commercial mortgages (93% fear lack of availability), unsecured loans (86%), and secured loans (81%).

The net result, according to Nick Baker, Head of Intermediaries, Allica Bank, is that small businesses’ efforts to recover from the pandemic will be severely hamstrung. “The Government lending initiatives have been a lifesaver, but they have also tied up the capacity of many lenders.”

“This means they are unable to service the more ‘traditional’ funding needs of businesses not seeking COVID relief, such as those looking to grow. Businesses like this will be central to the UK’s economic recovery, and we need to make sure they have access to adequate funding now to spur long-term growth.”

Allica Bank has increased lending capacity (it recently increased its maximum commercial mortgage loan size from £2 million to £3 million) and expanded its workforce to meet future demand Baker continued “We want to reassure our broker partners and customers that Allica is open for  business and in a strong position to continue to provide financial support for established SMEs.”

Allica’s research found that brokers are also concerned about the ability of SMEs to access asset finance this year. Almost three quarters (70%) of the brokers polled said they thought it’s likely that SMEs will be under-served by banks and non-bank lenders for this form of funding.