Why Can’t Retail Investors Fund Government Guaranteed Emergency Loans?

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  • Pressure increases for British Business Bank to lift restrictions
  • Ordinary investors are treated unfairly, industry says
  • P2P lenders discouraged from participating as a result

The British Business Bank (BBB) ​​is under increasing pressure to explain why retail investors cannot participate in the Coronavirus Business Interruption Loan (CBILS) program, as industry stakeholders argue that ordinary people are treated unfairly.

Retail investors are not allowed to fund loans that are part of the emergency program, which offers an 80% government guarantee on the value of loans to small businesses to support them during the pandemic.

Accredited peer-to-peer lender Funding Circle has temporarily suspended all non-CBILS loans to focus on supporting the government program until further notice, meaning retail investors are now no longer able to fund new loans via its platform. The only other accredited P2P lender, Assetz Capital, has kept its non-CBILS products available, which means retail investors can still fund other loans on its platform.

The state development bank did not explain why retail investors are exempt from CBILS. It is understood that this has deterred some P2P lenders from seeking accreditation under the program, potentially blocking other supply routes.

The P2P real estate platform Proplend abandoned its plan to offer a CBILS Innovative Finance ISA (IFISA) last month.

“We applied as a CBILS lender, promoting the IFISA concept of Coronavirus Business Interruption Loan as well as institutional funding,” said Managing Director Brian Bartaby.

“But following discussions with the BBB, we went into the details of the project and decided that this was something Proplend would not pursue.

“Allowing individual investors to participate in CBILS via their ISA envelopes would have provided them with essential income, at a time when bank interest rates are at historically low levels.

“The fact that it has 80 percent government backing would have been a big boost for investors. On paper, it seemed like a win-win solution.

A spokesperson for RateSetter said the platform would take a keen interest if CBILS was open to accepting retail money. Retail investments make up the vast majority of RateSetter’s funding.

Stuart Law, managing director of Assetz Capital, said the platform did not ask why there was a block on retailer participation, but maintained that there were still broader benefits for retailers. daily investors.

“It’s a BBB rule that everyone follows,” he said. “Retail investors would generally benefit from the reduced economic impact resulting from the introduction of CBILS, like everyone else in the country.”

Read more: Ablrate chief: P2P lenders would offer emergency programs better than banks

But Neil Faulkner, of P2P analytics firm 4th Way, said it made no sense for banks to be allowed government-backed funding when retail investors are not.

“By now locking down retail lenders, the government continues to treat ordinary people unfairly,” he said. “The banks simply have too much power over the country and its elected officials. “

John Cronin, analyst at Goodbody Brokerage, agreed the policy was unfair in some ways, but suggested there may be valid reasons.

“On one level, this is completely unfair – unequal treatment, denying retail investors the opportunity to secure potentially lucrative long-term return opportunities,” he said. “However, the CBILS rules were probably designed this way for a few compelling reasons: CBILS loans are interest-free for the first 12 months, which means that such an investment product is unlikely to be deemed attractive by the vast majority of retail investors.

“Retail investors can gain exposure through self-invested personal pensions and self-administered personal pensions in any case.

“This could slow down the process as it may take longer for accredited lenders to build a pool of retail investors in some cases and these are high risk loans so the Treasury may have been concerned. to minimize the risks for retail investors. “

The BBB has been contacted for comment.


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