Involving the alternative lending sector is the key to addressing the problem of distributing government loans and other support to businesses struggling as a result of the Coronavirus lockdown, according to the founder of ClearBank and RTGS Global Nick Ogden.
Ogden tells Finextra TV of the work being done to provide a channel from the UK government via ClearBank, to reach this sector who would then be able to lend to local businesses and keep them afloat during this period and in the difficult times that lie ahead.
“We’ve been looking at the issue of distribution,” Ogden says. “How does the government get the money out of its coffers and into the businesses that matter in the UK?”
“The proposal we put forward was to provide a liquidity conduit of treasury money, channelling it through to the alternative market and letting it get access to wholesale money at costs that make sense to the economy.”
Ogden, who spoke to Finextra Research in October about his concerns over the Libra digital currency removing liquidity from mainstream financial system, is a non-executive chairman of funding aggregation lending business Funding Options, as well being the founder of ClearBank.
“What we’ve tried to do is bolt those two together to provide a distribution channel,” he says.
“Channeling money through ClearBank and allowing that to reach alternative lenders who could then lend to the marketplace, using the experience of the lenders to enable quicker distribution.”
He believes that alternative lenders, which now constitute a significant portion of the marketplace in the UK, have been rather left out of this process, with the incumbent commercial banks being relied on too heavily.
While Ogden praises the government for the support it has pledged to struggling businesses, he believes it has been held back by operational inefficiencies and somewhat restrained scope.
“The government has basically done a number of great initiatives to start the process, but the problem it’s got is it’s used the historic banks to channel the CBILS in a way that hasn’t been efficient,” he says.
“Trying to put together a scheme that enables you to provide funding to all businesses in the UK within a four-week period is a horrendously difficult task so what they’ve achieved thus far through the British Business Bank is great.”
However, a loan of £50,000 may not go particularly far even for most small businesses.
A small business with an average turnover of £1m and a 20% profit margin equates to £67K of costs to cover every month. Assuming furloughing staff can cut this figure in half, the business still has extremely limited room for manoueuvre.
“£50,000 only gives six or seven weeks of runway,” Ogden says, “and nobody believes that the economy is going to be back where it was in six or seven weeks’ time.”