It has been a year since the government announced the news that they will be introducing a bank referral scheme.
Despite it being a year ago, there still hasn’t been a set date for the initiative to come into place. However, last week on AltFi we revealed which referral platforms had been shortlisted for consideration.
It seems as though alternative platforms now believe that the process is taking too long with Norman Carson, Director of Business Development at Boost Capital revealing that ‘much of the industry feels frustrated at the time the bank referral scheme is taking to materialise’
“Just last week, the Bank of England announced that June saw the biggest drop in small business lending since records began and this demonstrates how critical it is that small businesses get the funding they need. Access to the bank referral scheme is one crucial step to delivering this.”
“The key issue is the way in which this system may be administered by banks themselves. If SMEs do not get referred until after a long decision process, I fear it will destroy the referral programme before it gets started. My hope is that the system will soon be operational to better serve small firms and get companies to our doorstop as quickly as possible. We can do the rest; helping small companies to grow, thrive and fuel the British economy,” he added.
The announcement of the shortlisted referral platforms does seem to suggest that the process is moving along and that a date isn’t too far away. We believe that there are between 10-20 shortlisted platforms but last week we were only able to confirm that Funding Options, FINPOINT, AlternativeBusinessFunding, Funding Xchange and the NACFB are in the running.
In a recent report conducted by Boost Capital it revealed that SME borrowers face a 50% rejection rate, with fewer than 2% of businesses declined for loans by their banks appealing the decision and only 1.3% successful in their appeal.
It would make a lot more sense if banks could refer businesses before going through the whole loan application process. If a bank already knows that a business is to be refused, they should be able to refer them to an alternative provider there and then.
Referring these businesses only after a long and painstaking review will exclude hundreds of thousands of businesses from the funding they need to grow, in particular, firms needing finance quickly such as for equipment repairs and new contracts. To add to this, these firms are likely to incur additional costs from the production of detailed business plans and professional management accounts, unnecessary for many innovative new forms of finance.