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Thousands of business in limbo as Tide pauses Bounce Back loans

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read
Tide CEO Oliver Prill. Photo: Tide
Tide CEO Oliver Prill. Photo: Tide

Thousands of small and medium-sized businesses (SMEs) face an uncertain future after business account provider Tide was forced to suspend Bounce Back loans.

Fintech Tide said in a blog post late on Tuesday it would “pause” lending under the Bounce Back loan scheme, a government-backed loan programme aimed at supporting businesses through the COVID-19 pandemic.

Tide is an app-only business account provider with 200,000 customers in the UK. The startup, founded in 2015, was approved to issue Bounce Back loans in mid-May and lent over £50m ($62.8m) by mid-June.

However, Tide is not a bank — a third-party provides its bank account — and so cannot lend customer deposits. Instead, it raises money from investors to then lend.

Tide was surprised by the level of demand among its customers for Bounce Back loans and said last month it needed to raise hundreds of millions of pounds to meet all the demand on its waiting list.

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The company had been holding talks with financial institutions about securing additional funding but discussions collapsed on Tuesday morning. Chief executive Oliver Prill told Yahoo Finance UK it was a “tough day with tough decisions”.

Many lenders are unwilling to finance Bounce Back loans because of their small margins. The loans carry a fixed rate of 2.5% over 6 years. After costs, the returns are tough to sell to investors.

The pause leaves thousands of small business owners in limbo. Tens of thousands of businesses are understood to be on Tide’s Bounce Back waiting list, with many unable to secure funding from elsewhere. Most banks that do offer Bounce Back loans are only offering them to existing customers.

“We went into this because we understand that there’s a large number of SMEs that don’t have access to the Bounce Back loans,” Prill said. “A lot of these are our members. What we tried to do is find a solution which unfortunately we haven’t been able to do at scale.”

An advert for Tide. Photo: Tide
Tide is not a bank and so cannot lend customer deposits. Instead, it raises money from investors to then lend. Photo: Tide

Tide is now lobbying the government to provide direct funding for its Bounce Back loans. The government offers a 100% guarantee but does not put up cash itself.

“The government is already taking all the risk,” Prill said. “We are more than willing to unpause but we think, having spoken to a large number of institutions, that can only be done if the government provides the funding.

“If you look at the Future Fund, that’s lending by the government. It’s not like the government hasn’t done it before.”

The state-owned British Business Bank, which runs the Bounce Back loan scheme, said on Twitter it was “disappointed” that Tide’s funding fell through. In an email, the bank said it had been working closely with Tide and its initial approval for the Bounce Back scheme was based on secured funding for initial lending.

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The British Business Bank said government funding was an “area for discussion between Tide, the Bank of England and HM Treasury”.

Yahoo Finance UK reported in May that fintech companies including Tide were lobbying the Treasury and the Bank of England for access to the small and medium-sized enterprise term funding scheme (SMETFS). The programme, announced in response to the crisis, lets banks borrow money directly from the Bank of England at close to the base rate of 0.1%, so long as the funding is used to lend to SMEs.