The government-backed bank referral scheme, launched in November 2016, requires 9 of the UK’s biggest banks to pass on the details of small businesses they have turned down for loans to three finance platforms – Funding Xchange, Business Finance Compared and Funding Options.
These platforms then share their details with alternative finance providers and go on to facilitate a conversation between the business and any provider who expresses an interest in supplying finance to them.
In the first nine months of operation of the scheme – up to August 2017 – 230 small businesses from beauticians to forklift truck training companies, which were rejected for finance by some of the UK’s biggest banks, have received £3.8m from alternative lenders.
Loans resulting from this scheme ranged from £200 to £500,000, with an average size of £16,000. A number of sectors have benefited including construction, retail, technology and science.
A fourth finance platform, Alternative Business Funding, will join the scheme from 1 November 2017 to further widen the options available to businesses. The government will continue to work with banks to embed and improve their referral processes.
Research shows that 71% of businesses seeking finance only ask one lender and, if rejected for finance, many simply give up on investment rather than seek alternative options. (BIS/BMG Research)
In 2016 220,000 small and medium sized business sought a loan or overdraft, 25% of these were initially declined by their bank and only 7% of those declined were referred to other sources of help. (SME Finance Monitor Q4 2016)