From 1st November, it became a legal obligation for the UK’s nine major banks to refer any small to medium businesses who they have refused for finance to an alternative provider.
The Bank Referral Scheme
As part of the Small Business Enterprise and Employment Act 2015, the new bank referral scheme is aimed at making life for smaller sized businesses more straightforward through numerous changes, one of which being the bank referral scheme.
The scheme will mean that it is compulsory for banks to refer any small to medium business that they turn down for lending to an alternative finance platform. Three of these platforms have been pre-approved for referrals. They are: Funding Xchange, Business Finance Compared and Funding Options. Their job will be to put potential business borrowers in touch with alternative finance options.
By doing this, it’s hoped that by providing an easy access route and transparency it will aid growth in the UK, and has been hailed as ‘vital step’ in boosting the supply of business finance to small to medium businesses.
Half of First Time SME Borrowers Rejected for Finance
Before the scheme was put in place, the Department for Business, Innovation and Skills, which was replaced in July 2016 by the Department for Business, Energy and Industrial Strategy, reported that 50 percent of SMEs had been rejected for finance. In turn, this led to 37 percent cancelling their additional spending plans.
Indeed, The British Business Bank estimates that 100,000 small businesses are rejected for finance by banks each year; this is the equivalent to a £4 billion shortfall in business funding.
It is thought that only 3 percent of small to medium businesses that are rejected for funding go on to seek alternative finance sources, and it is therefore hoped that by offering the Bank Referral Scheme, a range of finance options will open up to the UK’s smaller businesses. After all, comparison sites are available for the likes of insurance, flights and credit cards, so why not business finance too? If you are seeking advice on funding for your small business, why not talk to your bookkeepers?