The Treasury’s bank referral scheme has achieved limited success, with only 5% of small businesses accessing loans through it.
- Launched in 2016, the scheme required banks to refer declined small businesses to alternative financing platforms.
- Despite facilitating deals worth £128 million, the scheme’s impact remains negligible given the £4 billion SME lending market.
- Critics argue the scheme overlooked key barriers small businesses face, such as poor credit histories and limited trading records.
- A lack of feedback systems and reliance on outdated processes further diminish the scheme’s effectiveness.
The ambition behind the Treasury’s bank referral scheme was to aid small businesses in accessing alternative financing when traditional banks turned them down. Launched in November 2016, it intended to bridge the gap between banks and independent finance platforms. However, only one in 20 referred businesses successfully obtained loans, highlighting substantial inefficiencies.
The scheme pushed nine major banks to forward rejected business loans to independent platforms that could potentially match these businesses with alternative finance sources. Despite facilitating 5,387 deals amounting to £128 million, this sum pales in comparison to the broader SME lending sector, which is valued at approximately £4 billion for a single quarter. The Treasury conceded that the outcome was below expectations, anticipating more robust conversion rates.
James Robson, CEO of FundOnion, expressed dissatisfaction, outlining that it took a decade for the government to comprehend the scheme’s limitations. He critiqued the paltry £1 million per month facilitation as minuscule against the significant £22 billion funding gap facing SMEs. Robson stressed that the scheme’s achievements were insufficient to meet the vast financial needs of small businesses.
Although the Treasury defended the initiative by citing increased awareness and access to smaller lenders as positives, many critics disagreed. Katrin Herrling, CEO of Funding Xchange, argued that an overwhelming 94% of the businesses referred do not present a finance-worthy profile, often due to limited trading histories or poor credit. The absence of a feedback loop further complicates matters, leaving businesses in the dark regarding the reasons behind their loan rejections.
Ian Cass of the Forum of Private Business pointed to a fundamental issue: a persistent disengagement by traditional banks with smaller businesses. Announced back in 2013 by George Osborne, the scheme experienced delays due to disagreements in its design. Nowadays, businesses opting into the programme receive offers from various lenders, including online financiers. Nevertheless, external challenges such as mandatory physical signatures, data quality problems, and incomplete lender referrals have negatively impacted the scheme’s effectiveness.
The Treasury’s bank referral scheme, despite its noble intentions, has yet to make a significant impact on SME financing.
