In light of Rishi Sunak promising £330bn in loans to UK SMEs, Geoff Dunnett, Legal Services Director of Shieldpay, comments on how the industry must prepare for fraudsters intercepting this large-scale distribution of money.
He said: “Rishi Sunak’s announcement of a package of financial measures to shore up the economy against the coronavirus impact is undoubtedly welcome news, but the question is how this will this be distributed to so many businesses.
“The Government expects commercial banks to help facilitate the distribution of the loans, albeit with 80% guarantee. However, notwithstanding this guarantee, the cost of implementing these interest free loans will be huge for the banks and the risks of default will remain high.
“The other challenge is distributing these loans at the speed needed to save many of the businesses at risk. This is going to be tricky as credit and operations teams come under serious and increasing staffing pressures. Lenders will need to rely heavily on online tools such as digital document onboarding, e-signing and digital payments.
“However, sadly, in times of plenty, there are fraudsters at every turn. Lenders will need to ensure that the funds are going to the most vulnerable and those most in need, not those with no intention of using the loan as indicated or ever repaying the handout. If the loans were restricted to being utilised only for paying things such as wages and business continuity essential costs paid directly to those third parties, this could reduce the risk from a lenders perspective, and possibly make loans available more quickly and with less rigorous lending criteria. If such a system could be put into place, the complexity here would be policing such activity at scale and ensuring that doing this does not impact the speed of execution. This would also ensure that the funds are not used by entities as a means for low cost funding.
“The other option is rather than providing the funding in one upfront payment, allowing companies to drawdown as and when they need for essential purposes. And, these types of products already exist with some lenders:
- Increased interest free overdrafts – For qualifying SMEs and for a limited period of time. These are very flexible could be more easily and quickly set up than individual loans.
- Revolving Credit Facilities – T Not all lenders have systems that can facilitate these. RCFs are traditionally cumbersome and costly to set up with most lenders and the lead time required for drawing down on funds may be problematic, but this would ensure that business only what they need.
“Ultimately, the industry needs a co-ordinated approach to getting the money in the hands of the right people as quickly as possible, otherwise the most vulnerable will need to turn to high interest rate loans from high cost short term lenders in order to survive and we will have a very big mess to recover from.”