UK Bank Referral Scheme Yields $20M For SMBs

Since the U.K. implemented its bank referral scheme, aimed at linking small businesses to alternative finance when they’re rejected for a bank loan, it has yielded less than $20 million in loans for SMB borrowers.

Reports in the Financial Times Adviser on Friday (Aug. 31) said the government’s bank referral scheme has linked small businesses to less than $20 million in funding since its November 2016 launch. More than $15.5 million of that was raised in the last year alone, with 670 small businesses accessing financing through the program after being rejected for a traditional bank loan.

In total, more than 900 small firms have accessed financing through the scheme, according to the publications.

The U.K.’s Small Business, Enterprise and Employment Act developed the program in an effort to expand access to funding for small firms struggling to get a bank loan. Traditional FIs have been striking partnerships with alternative lenders as a result.

“From breweries to beauticians, more than 900 British businesses have been matched with the funding they need to grow since we introduced our scheme,” said Treasury economic secretary John Glen in a statement. “Small businesses are the backbone of Britain, yet many give up on their plans to expand if they can’t get a loan from their bank. Now, however, thanks to our matchmaking scheme, they have another shot.”

Banks are required to refer rejected SMBs to online and alternative lenders like Xchanging, Alternative Business Funding and Funding Options. Those platforms, in turn, link SMBs to a range of investors.

According to Alan Chan, IFS wealth and pensions director and financial planner, some small businesses should be wary of working with alternative lenders to avoid a “costly mistake.”

He told the FT Adviser, “The scheme is a good idea in principle, because banks aren’t the only place to get funding, and there are a lot of specialist lenders that are not on the high street. … As with any loan, it’s important to fully understand the repayment terms and to read the small print.”