The Treasury’s bank referral scheme has been labeled unsuccessful, achieving loans for just 5% of small businesses denied by major banks.
- Launched in 2016, the initiative aimed to redirect declined borrowers to alternative finance sources but made only a minor contribution to SME lending.
- Key criticisms include a lack of meaningful feedback for businesses and a significant funding gap that remains unaddressed.
- Despite the criticism, the Treasury claims success in raising awareness, although many businesses are unqualified.
- Obstacles such as bureaucratic frictions and disagreement in the scheme’s design have hindered effectiveness.
The Treasury’s bank referral scheme was introduced to assist small businesses declined by major banks by directing them to independent platforms offering alternate lending options. Despite initial hopes, only 5% of these referrals have resulted in secured loans, marking the initiative as largely ineffective. Established in November 2016, the scheme has only facilitated 5,387 deals valued at approximately £128 million, a negligible amount compared to a quarterly gross SME lending of £4 billion.
Key figures in the industry, like FundOnion’s CEO James Robson, express dissatisfaction, highlighting that addressing merely £1 million a month in loans is insufficient against the estimated £22 billion funding shortfall for small enterprises. Robson pointedly criticized the delay in governmental acknowledgment of the scheme’s inefficacy, which he found “shockingly low.”
The Treasury maintains that the scheme has succeeded in its primary goal of increasing awareness among businesses about financing opportunities and enhancing access to smaller lenders. However, Katrin Herrling, CEO of Funding Xchange, notes that a staggering 94% of businesses referred lack a finance-worthy profile. Common deficiencies include limited business history and poor credit scores, leaving many applicants without a clear understanding of their rejection.
Industry voices such as Ian Cass, managing director of the Forum of Private Business, argue that the scheme’s limited success is partly due to the long-standing disconnect between traditional banks and smaller business clients. The scheme, initially announced in 2013, faced launch delays due to design disputes, which further complicated its intended smooth operation.
Challenges in implementation, such as the need for physical signatures, poor data quality, and incomplete referrals, have considerably impeded the scheme’s efficacy. These frictions have persisted despite the Treasury’s defense of their overall objectives being met. As the scheme continues, it becomes evident that without addressing the underlying reasons for its shortcomings, improvements in loan securing rates remain unlikely.
The Treasury’s bank referral scheme, while raising awareness, fails to meet the lending needs of the majority of small businesses.
