Philip Hammond

Chancellor announces alternative finance matchmaking tool

Philip Hammond, the chancellor of the exchequer, has introduced a new scheme to help SMEs access much-needed finance they are not getting from the big banks.

The new government scheme will see nine of the UK’s biggest banks pass on the details of small businesses they have rejected for funding to three finance platforms. 

Funding Xchange, Business Finance Compared and Funding Options will then share the SMEs details with alternative finance providers. 

This scheme should make it easier for businesses to access finance after they have been turned down by traditional lenders. 

RBS, Lloyds, HSBC, Barclays, Santander, Clydesdale and Yorkshire Bank, Bank of Ireland, Danske Bank and First Direct will all now have to offer access to these finance platforms.

Small businesses will be required to give their permission before any details are shared.

The announcement comes after research showed that 71% of businesses seeking finance only ask one lender, with many giving up on investment if rejected.

Mr Hammond said SMEs were the backbone of the UK’s economy and it was right they had access to a wide range of sources of finance.

“A refusal from a big bank should not be the end of the line for a small business and, thanks to the finance platforms being launched today, now it won’t be.

“We are determined to maintain the prosperity of our business sector and to support an environment where small businesses can grow and thrive.”

Last year, 324,000 SMEs sought a loan or overdraft, with 26% of these initially being declined by their bank and only 3% of those declined referred to other sources of help.

Keith Morgan, CEO of the British Business Bank, said the scheme had the potential to make a real difference.

“It gives businesses additional opportunities to secure funding, alternative providers access to a bigger market of potential clients, and major banks an extra service to offer their business clients when they cannot themselves provide finance.”

Meanwhile, Mike Cherry, national chairman of the Federation of Small Businesses, added it had pushed hard for these reforms.

“…Today’s announcement is good news as the government delivers on them. 

“This change will boost alternative lenders, bringing more competition and choice in the market beyond the big banks.”

Kevin Caley, founder and chairman of ThinCats, also welcomed the announcement and said it would be playing its part in helping small businesses.

“If this new initiative works it could help to improve awareness among small business of the funding options that are available. 

“Most SME owners tend to seek loans from their main bank with little or no shopping around, and those that end up being rejected often just give up looking. 

“Alternative lenders like ThinCats often have a different approach and we welcome the initiative.”

Glen Crawford, CEO of Amigo loans, felt that the computer says no culture in the UK financial sector needed to end.

"It’s really hard for the wedding photographers, the mechanics, the sandwich shop owners, the gardeners and all those sole traders we love and rely on in Britain to get their businesses off the ground or get the cash injection they need – and we know most of them only need around two thousand pounds to set up.  

"Amigo is already working directly with Funding Xchange to help the sole traders out there get the money they need. 

"This year alone we’ve helped nearly 1500 people with their businesses, lending almost five million pounds. We hope this scheme gets even more money to the people who need it most." 

James Sherwin Smith, CEO of Growth Street, welcomed the scheme but felt it was unclear what protections were in place to hellp businesses get the best deal from the proposed alternative finance providers.

"Businesses should be vigilant, as this system may result in firms not getting the best deal available, and could potentially result in mis-selling.  

"One aspect that could help protect businesses would be for finance providers to disclose the APR for their product. The Competition and Markets Authority has already ruled in favour of this, but only for unsecured business lending up to £25,000."

The British Banking Association (BBA) also commented on the new requirements.

Mike Conroy, managing director for business finance at the BBA, said: “Banks are helping SMEs to do what they do best – drive economic growth and create jobs.”

The latest SME Finance Monitor showed that eight out of 10 businesses that applied for finance in the past 18 months were given the green light.

Mr Conroy added: “It is important though that businesses which are unsuccessful in their application for bank finance have access to other sources of funding.

“Some alternative finance providers may be in a better place to support their plans.

“The industry is working closely with [the] government and the referral platforms to ensure the scheme is a success.”

Alongside the announcement, NatWest has introduced an alternative lender panel.

The bank will refer business and commercial customers they are unable to assist to a panel of alternative finance lenders, including iwoca, Together, Assetz Capital and Funding Circle.

[Updated on 03.11.16 by Jordan Williams]

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