However, the Barclays business banking CEO says that entrepreneurs turned down for loans by high street banks turn to alternative lenders. This could see the collapse of an alternative lender if lending criteria becomes too lax.
Rand told Small Business: “There were a lot of people that banks wouldn’t lend to who went to Wonga instead. That didn’t work out too well for them or for Wonga. I am nervous that we could be going down the same path with business lending.”
Rand said that new fintech entrants to small business lending do not have the same “duty of care” as high street banks if SMEs get into distress and cannot repay their loans. This is because some are not signatories of the Standards of Lending Practice, which all the high street banks have signed.
In the past RBS has been criticised for the small number of distressed debtors that emerged from its Global Restructuring Group recovery unit, which companies in financial distress were passed into. The percentage of debtors that returned to the main bank was 10pc. Barclays however says that 75pc of distressed businesses that go through its Business Support Team emerge the other side.
Rand said: “I really worry that with the attention on how banks have performed poorly turning businesses around, there’s nobody at the fintechs who does this … they just sell the debt on. They are not subscribers to the Lending Code, which puts obligations around the bank such as transparency in fees and charging, quality of communication, and, most importantly, about treatment when you are in distress.
“The vast majority of fintechs do not have workout teams that are focused on ensuring businesses survive and thrive when they get into challenges.
“We’ve seen what’s happened with Wonga. Let’s make sure that businesses understand the quality of the lending and the service they receive [from high street banks] and are not bamboozled by clever marketing. It’s very important that banks and fintechs hold themselves to the highest standards.”
Peer-to-peer SME lender Funding Circle said: “When a business experiences difficulties repaying their loans, we don’t write down debt or sell it off as investors expect us to maximise their returns by recovering as much as possible over the long term. Since 2014, we have had an in-house Collections and Recoveries team who cover every stage of the process and who specialise in working closely with businesses experiencing difficulties.
“Essentially, we believe the most effective way to maximise recoveries and protect investor returns is to help a business get back on their feet so that they can get back to repaying their loan. We encourage businesses to communicate with us and be open during difficult times, and work with a carefully selected panel of business advisers who specialise in business transformation. Our results to date show this approach is successful.”
Niels Turfboer, managing director of Spotcap, which has lent over €250m to small businesses worldwide, said: “If a business finds itself in an unfortunate situation and struggles to repay the loan, our collections team gets in touch with them to find out exactly what’s going on, trying to come to a solution which works for both sides. Over the years, we have developed several hardship solutions such as payment holidays, but also offer more bespoke repayment plans to support our clients. We don’t – and never will – sell our debt on to third parties. We don’t, because there isn’t a guarantee that the company would adhere to the same standards and duty of care towards our clients as we do.”
OakNorth, which has lent £3 billion to British business within four years, says it is a fully-licensed banking institution — dually regulated by the Prudential Regulation Authority and the Financial Conduct Authority — which has fully implemented the Senior Managers and Certification Regime, including the Standards of Lending Practice (previously known as the Lending Code) and TCF (treating customers fairly) amongst others.
Read the full interview with Barclays business banking CEO Ian Rand