Financial technology companies, challenger banks and alternative lenders could soon be joining big banks in distributing U.K. government-backed loans to small and medium-sized businesses hit by the novel coronavirus pandemic.

These companies can do as good a job as incumbent banks in disbursing government loans to businesses, if not better, industry insiders said. Starling Bank Ltd., Aldermore Bank Plc and iwoca Ltd told S&P Global Market Intelligence that they hope to be included in the scheme, which is being administered by the British Business Bank PLC.

Government measures to halt the spread of COVID-19, the disease caused by the coronavirus, have since March 23 included the closure of bars, restaurants and nonessential shops. U.K. Chancellor Rishi Sunak made £1.2 billion of government-backed loans available to SMEs through the Coronavirus Business Interruption Loan Scheme, or CBILS, which opened for applications March 23. SMEs that have had business interrupted can apply for up to £5 million via the scheme, which is to be distributed via 40 lenders accredited by the British Business Bank.

Big banks such as Barclays PLC, HSBC Holdings PLC and Lloyds Banking Group PLC are included on the list of accredited lenders, along with a number of specialist and regional lenders including Skipton Business Finance Ltd. and Chamber Acorn Fund (Humber) Ltd. However, fintechs and the generation of challenger banks that came of age the since the 2008 global financial crisis are conspicuous in their absence.

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The British Business Bank said it was looking to incorporate fintechs and alternative lenders into CBILS as soon as possible.

"Our first priority was to get the scheme up and running. But now it is our priority to get new lenders involved," a spokesperson said in an interview, adding that there had been "a lot of interest" from fintechs and alternative lenders.

Starling has already got an application in, a bank spokesperson said.

But the British Business Bank must act fast, fintech bosses and industry experts said.

With the month coming to an end, it is "crunch time" for SMEs with bills to settle and staff to pay, Raghavendra Rau, professor of finance at Cambridge's Judge Business School and an expert in alternative finance, said in an interview. Rau said he welcomed CBILS, and he was "cautiously optimistic" about the scheme's ability to stabilize cash-strapped SMEs.

"I would probably agree that smaller lenders are in a better position to get funds to SMEs," he said.

Liquidity needed in hours, not weeks

Christoph Rieche, CEO of Iwoca, which specializes in lending to small businesses, agrees that business's need for liquidity is growing more urgent by the day.

"We remain focused on our mission to provide our customers with the finance they are going to need to bridge cash flow gaps, stay afloat and plan for the future. But they need it within hours, not weeks. We hope to be accredited so that we can work with HM Treasury and the BBB to ensure that the measures put in place are implemented in a way that is genuinely going to help micro businesses and the wider economy," he said in an email.

While Sunak's quick introduction of CBILS is laudable, the government needs to be realistic about the limitations of big banks when it comes to getting emergency funding out of the door, Louise Beaumont, executive chair of Signoi, an artificial intelligence-based analytics firm, and chair of the smart data working group at industry body techUK, said in an interview.

"Announcing measures is great, but businesses need to be able to access them," she said.

Fintechs and alternative lenders will often be better-placed to get funds to SMEs rapidly than big banks, Beaumont said.

'We're ready'

SME lending platform Funding Options Ltd., in which Beaumont is an investor, wrote a letter to Sunak, seen by S&P Global Market Intelligence, urging him to include challenger banks, fintechs and alternative lenders in CBILS, and to tap into their expertise in order to find new solutions to the funding woes of SMEs.

"We have some of the world's best developers, all of which are used to pivoting at a moment's notice, and building products to scale. We can help build platforms that will streamline the process for businesses to access these funds. You can also use our customer success staff to offer support and guidance to businesses. We are on the frontline when it comes to supporting businesses facing financial worries. We know the pain points around accessing finance, and we're ready to offer help through our digital channels," the letter said.

Funding Options also urged Sunak to make use of Open Banking, a law that allows fintechs and other institutions to plug into primary bank account data, with user permission, to analyze transactions and provide products and services.

"This will reduce the time it takes to distribute loans under the CBILS, therefore saving businesses and jobs, helping to stabilise the economy, and building the road to recovery," the letter said.