Bank Referral Scheme opens up alternative finance options

Under the new referral scheme, banks will be required to give small businesses which have had their loan applications declined the chance to be passed on to alternative lenders

UK small businesses which have been refused finance by the banks can now have their applications passed on to rival lenders as part of a new Government-led referral scheme.
The Bank Referral Scheme, which was originally announced back in 2014, has been officially launched this week to boost the finance options open to small businesses.
Ian Cass, chief executive of The Forum of Private Business, who has welcomed the move but is urging new lenders to be completely transparent, said: “We have been waiting well over a year for this platform to be launched, but now that it has been we hope that it will help businesses who need loans and overdrafts to look beyond the banks when they are unsupportive.
“Cash flow is critical to the success of businesses, and their growth has been restricted by the banks’ retrenchment. This initiative should now open the way to businesses finding alternative sources of funding from the emerging banks and alternative lenders.
“While we welcome this, we are calling on the new lenders to be completely transparent with their terms and conditions, and their pricing, to ensure that businesses do not find themselves committed to high interest rates and onerous terms.”
Until now, the ‘big four’ – RBS, Lloyds Banking Group, Barclays, and HSBC – have provided 80% of loans to small businesses.
Under the new referral scheme, nine banks will be required to give small businesses which have had their loan applications declined the chance to be passed on to alternative lenders Funding Options, BusinessFinanceCompared or Funding Xchange.
‘Computer says no culture’
Glen Crawford, CEO of Amigo Loans, added: “Millions of small businesses are refused loans by the bank every year, usually because they’re judged purely on a credit score and how much profit they will or won’t make for the bank. 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.
“The ‘computer says no’ culture that runs rife within UK financial services needs to end, which is why the launch of the Bank Referral Scheme is so significant. 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 1,500 people with their businesses, lending almost five million pounds. We hope this scheme gets even more money to the people who need it most.”
 Research from Amigo Loans found:
  • Just 20% of micro-businesses were funded through a bank loan and one in six had to resort to a payday loan to fund their business
  • The average micro businesses needs just £2,143 to set up, yet many struggle to get this funding and resort to more dangerous alternative methods, such as payday loans. 13% were forced to borrow from a friend or family
  • Of those people who have had businesses fail in the past, a fifth believe it was because they were unable to get a bank loan
  • Just one in 10 were able to secure a loan from the bank in their first year of trading, with a third having to rely on their business acumen to get them through
  • Ambitious entrepreneurs are also struggling, with a quarter (25%) of micro-businesses needing additional funds to help them expand, yet just one in ten believes they will be able to get funding from their bank. 14% would be forced to use their overdraft/credit card to grow their business

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