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The UK-based lending marketplace saw loan applications total over £1 billion ($1.2 billion) from 10,000 businesses in March alone, according to AltFi. For context, this is a fivefold increase from what it normally expects to see, Funding Options told Business Insider Intelligence.
The increase was partly due to a 100% rise in the number of referrals it gained from the government's Banking Referral Scheme. The scheme helps businesses that have been unsuccessful in accessing capital from major banks, and requires those banks to refer applicants to third-party finance platforms like Funding Options.
Businesses can initiate their application for a loan via Funding Options' platform, which then matches them with appropriate lenders for their financing needs. Funding Options has teamed up with over 70 lenders, including legacy players like HSBC and alt lenders like iwoca.
Despite this high demand for business loans, lenders are extending fewer loans. With the future of small businesses being uncertain during the ongoing coronavirus pandemic, many lenders are approving fewer loans for such companies as they become riskier borrowers: In the US, the approval rate for business loans stood at 15% in February and dropped to 4% in March, per Become.
Additionally, US small- and medium-sized business- (SMB) focused alt lender Kabbage paused lending for the time being, while UK peer-to-peer lender Assetz Capital introduced a lender fee, likely because it's going to be more cautious in extending credit since some borrowers are expected to default.
While Funding Options' platform can streamline access to loans, more government initiatives are needed to provide businesses with the necessary capital.
Funding Options can help businesses find suitable loan options. By using Funding Options' platform, businesses can browse offerings from various lenders with one application, rather than having to search their individual websites. This can help them find loans that suit their needs even as fewer options become available, and may enable them to find lenders they wouldn't have normally sought out.
However, finding a loan via Funding Options will become more difficult as lenders tighten their approval criteria, and the government should approve alt lenders for government-led schemes quickly. The fintech has already called for the government to reevaluate how it's supporting businesses during the crisis. As of now, alt lenders - excluding P2P lenders - are able to apply for accreditation to join the UK's Coronavirus Business Interruption Loan Scheme (CBILS), which would allow them to extend the loans under the government scheme.
However, it's unclear how long it will take to process those applications. The government should work to approve such applications quickly, as this would help businesses get access to funding while also boosting Funding Options' platform.
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