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Overcoming the barriers to TFSME for non-banks

Leasing Life has republished an article from Early May, which looked at the funding prospects for UK non-banks asset finance lenders. The article looked at the Bank of England's Term Funding Scheme for SMEs and included my comments on this topic. I provided the following update:

Since this article was originally published, there has been more attention on the Bank of England's Term Funding Scheme for SMEs (TFSME) and the question of whether non-banks should be able to access it indirectly i.e. via participating banks. (Calls for for non-banks to access TFSME directly don't seem to have been successful).

Indirect access remains possible but requires the support of participating banks, and it has been reported that banks are 'blocking' access. I think that's probably too general a view.

There remain two key barriers to banks using TFSME in this way:

1) The rules of the TFSME give preferential treatment for direct lending to SMEs (i.e. direct lending is 'worth' five times as much in terms of accessing TFSME funding) - something I expect the Bank of England would review if this was put to them by participating banks.

2) Banks need to be confident they will get their money back with a fair margin (it will be their money, even if it has come originally through TFSME). Industry-wide granular data on asset finance loan performance - as exists in other markets including the USA and Canada - would help provide that confidence to banks (and, more widely and outside of the TFSME, other institutional investors, who do already fund SME lending through channels such as Funding Circle).

As more non-bank asset finance lenders face liquidity issues, overcoming these two barriers remains important to the vitality of the sector.

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