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How has the Bank Referral Scheme impacted business finance?



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With a general election looming and the EU referendum still fresh in the minds of many small business owners, access to business finance could now be less assured than ever before.

So it must have come as welcome news when the government launched a Bank Referral Scheme to pass loans rejected by high street lenders on to alternative finance providers in November 2016.

However, just months after the introduction of this finance match-making service, HM Treasury has revealed that Professor Russel Griggs had been appointed to review the referral processes.

“Since the scheme started back in November, it's made very little impact and it comes as no surprise that it's now being reviewed,” admitted Stuart Law, CEO of Assetz Capital.

“We have not seen a significant uptick in referrals and welcome the review.

“If this scheme works as intended, it could be of huge benefit to borrowers, banks and alternative finance platforms.”

This sentiment was shared by John Davies, CEO of the Just Loans Group and chairman of the Association of Alternative Business Finance (AABF), who believed his company had received negligible business through the scheme.

“Our experience is generally echoed by all members of the [AABF] and it is tempting to use the considerable experience of our membership to start suggesting solutions.

“…Given the breadth of our membership, it does start to raise questions [as] to what the truth of the matter really is.

“However, we need to understand if the blockages [and] issues are with the banks, the platforms or simply a lack of demand from SMEs.”

Taking care of business

Despite these lenders’ assertions, a spokesperson for Funding Options – one of three platforms responsible for sharing SMEs’ details with lenders – said the company was happy with the scheme.

“The more pessimistic predictions about the Bank Referral Scheme have frankly proved wrong: Funding Options alone has already delivered millions of pounds in vital finance.

“…This year [we] are on track to deliver a similar quantum of SME lending through it as the bank appeals process did in its launch year of 2011, a scheme which is now considered to be a huge success, and has become an established part of the UK's SME finance ecosystem.”

Funding Options recently closed the scheme’s largest deal to date, helping a furniture business to secure a £500,000 invoice finance facility when its bank was no longer able to support due to debtor concentration.

Meanwhile, Katrin Herrling, CEO and co-founder of Funding Xchange, stated that many customers who have been declined by banks require a broader set of funding solutions than simply debt, such as equity financing.

“We are helping customers coming through the referral process every day.

“In my mind, success should be measured against new expectations [and] we don’t think the referral scheme is miles off our expectations.”

Katrin insisted that from Funding Xchange’s perspective, banks have been actively engaged in making the referral process work.

“What is helping and hindering is that banks are viewing the referral process as a compliance issue, [and] this means banks have put strong processes in place to ensure that referrals are offered,” she added.

“But it also means that not all banks are viewing referrals from the perspective of making this a positive customer experience where customers gain access to broader funding solutions.

“I do believe that this may well change in the future as platforms are proving that they can provide solutions that are complementary to bank funding and are enabling businesses to succeed.”

Furniture business
Funding Options helped a furniture business to secure a £500,000 invoice finance facility

A quick fix?

While the scheme may indeed be facilitating deals, lenders’ biggest qualms appeared to be with the volume of business.

Stuart argued that this was due to the scheme having not been designed optimally to get referrals through efficiently, and favoured a complete redesign in order to turn it around.

“One major improvement that could be made is opening up the parameters to include all rejections, including those made at source by local bank managers."

Such is the importance of the scheme, it could play a role in shaping the upcoming election.

In its 2017 General Election Manifesto, the Federation of Small Businesses called for greater accessibility of lending figures to demonstrate the efficacy of the scheme.

“The next government should review and strengthen the role of the mandatory debt referrals platforms by releasing quarterly data on the number of small business referrals that have taken place,” read the manifesto.

“It should also agree action plans with poor-performing banks that are failing to refer small businesses adequately.

“More broadly, there should be a review into small business lending data disclosure to bring much needed transparency in traditional bank finance.”

Although releasing this data may highlight whether the scheme is working, finding a solution to these perceived obstacles could require more time.

“Suggesting answers now would be like going to the doctor to be diagnosed for a suspected illness and [them] providing you [with] a prognosis without any form of consultation or examination,” added John.

“So let's see what comes out of the review first.”

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