Bank referral

Should more banks form partnerships with alternative lenders?

More banks should be forming partnerships with alternative lenders, one business finance provider has stated.

The comment comes after NatWest and Royal Bank of Scotland made another addition to its Capital Connections programme by welcoming the Start Up Loans Company. 

Capital Connections allows NatWest and Royal Bank of Scotland to refer SMEs which are unable to obtain traditional financial backing to a panel of alternative lenders.

Together, Assetz Capital, Funding Circle, Seedrs and iwoca are the other members of the Capital Connections programme.

“More banks should certainly be forming similar partnerships with alternative lenders,” said Christoph Rieche, CEO of iwoca. 

“This is a win-win situation. 

“Small businesses can implement their plans with much-needed access to funds, while banks increase engagement with happier customers. 

“The impact on SME lending could be very significant indeed.” 

John Davies, director of Just Cash Flow PLC, said that he would prefer it if all the traditional banks got fully behind the bank referral scheme.

“I have noted with interest the news of this latest partnership – similar to other arrangements that have been announced.

“While it appears good news for the customers of the bank, my preference would be for all the traditional banks to fully get behind the government-backed bank referral scheme and use the designated finance platforms which have a much wider choice of alternative lenders, not just a ‘chosen’ handful.

“This would be more transparent and accountable to government to ensure that indeed more choice is being given to borrowers and offer a better choice to SMEs, which would breed confidence among businesses looking for the financial support they need.”

In the bank referral scheme, the UK’s biggest banks pass on the details of SMEs that have been turned down for loans to three SME finance platforms, which then share their details with alternative finance providers.

Almost £4m of funding was accessed by 230 SMEs under the matchmaking scheme.

Chirag Shah, CEO of Nucleus Commercial Finance, felt there were clear benefits to the collaboration between banks and alternative lenders, but also urged for transparency. 

“We would need to see that the innovation from alternative lenders and the years of experience from banks in dealing with issues such as due diligence are being shared in a way that ultimately benefits the businesses applying for finance.”

Chirag said the issue with bank and alternative lender schemes was the generic umbrella term of ‘alternative finance’. 

“The real value of alternative lenders is their ability to tailor (and communicate) innovative funding solutions that are bespoke to the challenges that individual cash-strapped industries face. 

“Industries such as construction and education, for example, face unique but different cash flow challenges and often need specialist finance options that not all alternative finance lenders can provide.”

Chirag added that if implemented in the right way, a bank and alternative lender partnership scheme could be hugely beneficial to businesses. 

“However, with the current set-up, the scheme perpetuates the idea that a traditional bank loan is the first port of call. 

“To ensure that businesses get fast, efficient access to finance that fits their needs, we must work harder to ensure they understand the alternative options.”

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