SMEs Failing to get Funding

Government Announces Automatic Referrals for SMEs Failing to get Funding

The Government has announced new measures that could help small businesses access alternative funding if their application to larger, established banks is unsuccessful.


Big Banks to Take Responsibility

Under the new scheme, nine of the largest banks – RBS, Lloyds, HSBC, Barclays, Santander, Clydesdale and Yorkshire Bank, Bank of Ireland, Danske Bank and First Trust Bank – have a duty to offer to refer SMEs to alternative funding platforms if they themselves have turned down their application for funding.

With the permission of the SMEs involved, these banks will refer their application to three finance platforms: Funding Xchange, Business Finance Compared and Funding Options. These platforms will then share the SME’s details with alternative finance providers and facilitate a conversation between them and any provider who expresses an interest in providing finance.

The Government has made the move in light of research that shows that Research shows that

– 71% of businesses needing finance only apply to one lender and may give up on seeking investment rather than look for alternative options.

– Of the 324,000 small and medium sized businesses that sought a loan or overdraft last year, 26% of these were initially declined by their bank and only 3% of those declined were referred to other sources of help.

“Small- and medium-sized businesses are the backbone of Britain’s economy and it is right they have access to a wide range of sources of finance,” said Chancellor of the Exchequer, Philip Hammond. “A refusal from a big bank should not be the end of the line for a small business and, thanks to the finance platforms being launched today, now it won’t be.

We are determined to maintain the prosperity of our business sector and to support an environment where small businesses can grow and thrive.”

‘The Potential to Make a Real Difference’

The move has been welcomed by many, and Keith Morgan, CEO of the British Business Bank, believes the initiative “has the potential to make a real difference” to smaller business finance markets in the UK.

“It gives businesses additional opportunities to secure funding, alternative providers access to a bigger market of potential clients, and major banks an extra service to offer their business clients when they cannot themselves provide finance,” he explained.

The FSB, which has pushed for the reforms that brought about this referral scheme, also see it as a very positive step towards boosting small business. National Chairman Mike Cherry said:

“Small firms struggling to access finance will now automatically have a new way to get the support they need to invest and grow. FSB pushed hard for these reforms, and today’s announcement is good news as the government delivers on them. This change will boost alternative lenders, bringing more competition and choice in the market beyond the big banks.”

Not ‘Just Another Token Initiative’

However, some have been more cautious, questioning if the banks will choose to make this process swift and simple. Conrad Ford, chief executive of Funding Options, sees the initiative as “a milestone for UK business,” but warns: “I have heard that some banks plan to ask small businesses to sign a form and send it back to accept referral to the scheme, while others are planning voice calls to handle the process.”

He also said it’s possible that “some banks might get the SME journey wrong on day one… it’s perfectly natural to expect the bank referral scheme to take time to bed down and gain momentum.

He doesn’t believe that it’s in any bank’s interest to disrupt the process long-term, though: “Regulators have made it clear that they will be watching closely, and as no Chief Executive of a major bank is going to enjoy being hauled in front of senior ministers, it will be a very foolhardy business banking executive that doesn’t very quickly fix things if the bank is not contributing their fair share of referrals. After all, the bank referral scheme isn’t just another token initiative by the banking industry, it is the law.”


Stephanie Whalley
Serial snacker, compulsive cocktail sipper and full time wordsmith with a penchant for alliteration, all things marketing and pineapple on pizza.