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What Is The Term Funding Scheme, And Why Is It So Important To Extend It To P2P Lenders?

Posted 4 years ago

What Is The Term Funding Scheme, And Why Is It So Important To Extend It To P2P Lenders?
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While much attention has been paid to the debate surrounding the Coronavirus Business Interruption Loan Scheme, very little focus has been paid to other lending support options. One of these is the Bank of England recently announced Term Funding Scheme (TFSME) with incentives for SME.

The TFSME allows eligible banks and building societies to access four-year funding at rates very close to the Bank Rate. The scheme is designed to incentivise eligible participants to provide credit to businesses and households to bridge through the current period of economic disruption caused by the outbreak of Covid-19

Cashflow finance providers, including relevant Fintechs, have the most urgent need for access to TFSME funding, so they can target inexpensive loans to the many good businesses that are so close to the edge today.

The head of a lending trade body has urged the government to open up the Term Funding Scheme for small- and medium-sized enterprises (SMEs) to non-banks as a matter of urgency. 

Stephen Haddrill, director general of the Finance & Leasing Association (FLA), said that the non-bank lending sector relies heavily on capital markets and bank funding, two sources of finance which are currently closed, so these lenders will not be able to provide new lending as well as forbearance

“The result is that these lenders will not be able to provide new lending as well as forbearance – and when you consider that these finance companies provided £46bn of funding during 2019 to SMEs for business investment and point of sale finance for consumers, that would be a huge loss to the economy right at the point when funding will be needed to help the UK recovery.

“To remedy this, we want to see the Term Funding Scheme opened to non-bank lenders as a matter of urgency, and eligibility criteria streamlined to fast-track firms which are FCA regulated or already part of a British Business Bank scheme.”

Haddrill also urged for changes to the Consumer Credit Act (CCA) to speed up help for customers in financial difficulty.

“The CCA includes formal and complex modifying agreement provisions which requires a new agreement to be sent to the customer, signed and then returned before they are activated,” he said.

“Imagine how labour-intensive that process is when multiplied by the number of customers seeking forbearance.”

CEO of NextFin, Sacha Bright, responded: “Forgetting the intricacies of finance, the bottom line here is that the Bank of England is making more cash available for banks to lend to small business and households.

“Over the next 12 months, the Scheme will provide four-year funding at very favourable rates for banks to encourage lending. However, once again the government is favouring Elite and somewhat draconian institutions and are not being creative enough in supporting Fintechs, who are already lending billions to small businesses.

“My research shows that banks have been lending less year on year to small businesses, whereas alternative finance providers are lending more year on year."


Author: Sacha Bright & Oliver Murphy


To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed

Tagged: News P2P Lending Bank of England

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