When George Osborne announced the bank referral scheme two years ago, he aimed to “bring new lenders much closer to the small businesses they serve.”
It was an admirable goal, and one that’s nearer to becoming a reality with today’s launch of the new service to introduce small and medium-sized firms which are rejected for bank funding to alternative finance providers.
The British Business Bank estimates 100,000 businesses have their applications for finance rejected each year, representing a possible funding gap in the UK of £4bn. As part of the Bank Referral Scheme, we are working with nine leading UK banks to help secure funding solutions if the bank is unable to help.
The success of the government policy will be determined by the amount of funding unlocked for small businesses. This will require the banks to do their job explaining the benefits of a referral to customers and raising awareness of the programme. But it is also critical for the referral platforms to ensure businesses can access funding solutions that are right for the business and its plans.
The good news is that there are more than 100 new lenders and public support schemes ready to lend to businesses even if they have been told 'no' by their bank. This means businesses are likely to be attractive to many lenders who look at creditworthiness in different ways from a bank.
Even if a business can secure funding, most don’t compare available funding terms from multiple providers. The risk is small business owners end up with funding solutions that are more expensive than they need to be. Our own stats show the average saving by comparing pricing from multiple providers is £2,000 for a one-year loan – that represents 10 per cent of the value of the average loan.
There is a real need to create transparency in the business funding market, so business owners can feel in control of the process and confident to move forward. This is already common in the personal finance market through multiple price comparison websites, but has been lacking in funding for small firms. Until now.
The role of the Bank Referral Scheme is to create greater awareness of broader financing solutions. Our role is to make sure business owners are truly empowered to make informed funding choices. Achieving both goals would be real progress for UK businesses.