UK Treasury On The Defensive Over Bank Referral Scheme

The U.K. government’s bank referral scheme, designed to connect small businesses that were rejected for a traditional bank loan to alternative lenders, has faced its latest round of criticism as new figures reveal low adoption of the program.

The Times reported this week that fewer than 800 businesses were referred to an alternative lender under the scheme, leading to just $19.36 million worth of loans to small businesses in the 12 months ending on June 30, according to new data from the Treasury.

The program launched toward the end of 2016, but so far only 1,700 businesses have been referred to alternative providers of capital under the program, reports noted. A total of $38.7 million in small business loans has been provided throughout the entirety of the program’s lifespan.

The Federation of Small Businesses (FSB) described the latest data as “underwhelming,” with National Chairman Mike Cherry noting that the figures represent “helping well under 1 percent of the small business community secure a few million over three years.” He added that the data “doesn’t scream roaring success” for the bank referral scheme.

“There needs to be more encouragement on the demand side,” Cherry stated. “Small firms may be wary of handing over details to funding platforms.”

Nine traditional lenders, including RBS, Lloyds, Barclays and HSBC, are required to refer their small business loan applicants to one of three alternative lenders: Alternative Business Funding, Funding Options or Funding Xchange.

Cherry also said more alternative lenders should join the program to promote adoption.

One unnamed source told the publication that the three alternative lenders currently participating in the scheme operate with business models that make them unsuitable for debt financing in many cases. Their brokerage operations continue to be manual, making it impossible to handle a higher number of referrals, reports said.

However, Treasury Economy Secretary John Glen pointed to the scheme’s strengths, including an increase in both the number of referred SMBs under the program and the average value of small business loans provided.