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?
