Lawrence White and Ian Withers
LONDON (Reuters). British business lender Tide said it would not grant deferred payments to small firms that took out government-backed loans during the COVID-19 pandemic and became the first lender to step out of the ranks and refuse such support.
In February, the government announced new Pay as You Grow (PAYG) measures, offering companies in trouble the ability to defer government loans from six to 10 years, among other options.
Tide’s decision not to offer PAYG is an early sign that lenders are making a difficult choice between their own commercial interests and those of small businesses as the unprecedented level of support for such firms is dwindling.
He also highlights the risks for clients associated with obtaining loans from fintech companies. Online lending platforms such as Tide have gained prominence in the UK in recent years by using digital applications that often provide better services than conventional banks to reach a wider customer base. But some app providers don’t have banking licenses, and in the UK they didn’t get access to cheap central bank funding during the pandemic.
In a statement on its website, Tide said it would not offer PAYG because it does not have government support to help it renew loans.
More than 1.5 million so-called “repayable” loans (BBLS) have been made worth more than £ 46.5 billion ($ 64.9 billion), but the government estimates that up to 35-60% is projected to be insolvent.
Tide has already faced criticism over its handling of the BBLS last year after a lack of funding forced it to stop lending under the scheme.
‘BREATH OF SPACE’
Official data last month showed that insolvency in England and Wales fell to its lowest level in more than 30 years earlier this year, but more companies are expected to run into trouble as government support for the economy dwindles.
Treasury Minister Rishi Sunak said the additional support for PAYG would give firms “respite to get back on their feet” when the scheme was announced in February.
According to an interview with CEO Oliver Prill last year, Tide provided at least £ 50 million to BBLS. More recent data are not available.
“Tide made the difficult decision not to offer PAYG as we will not be able to fund the expansion for all BBLS members,” the statement said.
Martin McTag, vice chairman of the Small Business Federation, said the lender’s move was “deeply concerned.”
“The ability to extend grace periods or distribute chargebacks over longer periods of time will be important to the survival of many firms,” he said.
While lenders are not required to provide such support, many firms have counted on it, especially after the UK recently pushed back on June 21 to fully resume its economy, he added.
A Tide spokesman declined to comment, citing a statement from Reuters on the lender’s website.
The state-owned British Business Bank, which operates BBLS and PAYG, stated: “The borrower does not need the borrower to have financial difficulties in order to request Pay As You Grow, so it is expected to be offered if the client requests it. “
(1 dollar = 0.7169 pounds)
(Reporting by Lawrence White and Ian Withers; editing by Emilia Sitol-Matariz)