As expected, the HM Treasury has announced that big banks must now pass on the details of SMEs rejected for loans to three finance platforms: Funding Xchange, Funding Options and Business Finance Compared. These three platforms will then disseminate the information to alternative finance providers including peer to peer lenders. These new rules are designed to make it easier for businesses to access finance when they have been turned down by traditional lenders.
HM Treasury states that RBS, Lloyds, HSBC, Barclays, Santander, Clydesdale and Yorkshire Bank, Bank of Ireland, Danske Bank and First Trust Bank, will all have to offer access to these finance platforms, with small business having to give their permission before their details are shared.
The policy initiative is designed to address the funding gap for SMEs. Research shows that most businesses (71%) only approach a single lender to do the laborious process. If turned away they assume the door to finance has been closed. Now these rejected SMEs will be introduced to a panopoly of alternative lenders.
In the UK during 2015, 324,000 SMEs sought a loan or overdraft. Of these prospective borrowers 26% of these were initially declined by their bank and only 3% of those declined were referred to other sources of help. These facts highlight a serious challenge to providing access to capital.
Chancellor of the Exchequer, Philip Hammond said that SMEs were the “backbone of the British economy”.
“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.”
Keith Morgan, CEO of the British Business Bank, said this new government initiative has the potential to make a real difference for small business 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.”
Kevin Caley, founder and Chairman of ThinCats, said that after several years of false starts it was good to finally see the program going live.
“It would appear that we now have real progress, and ThinCats will be seeking to play its part in helping the thousands of small businesses, with viable propositions turned down by banks each year, access the vital funds they need to expand. Businesses face a £4 billion annual funding shortage from declined business loans in the UK often through no fault of their own. Usually this is due to banks feeling over-exposed in a particular sector or, because the business has ambitious growth plans. I have no doubt that many of these businesses are worthy of funding and will reap the benefits of this new scheme.”
Caley said that all alternative lenders welcome the new initiative and this program should boost awareness among SMEs to the growing number of non-bank alternatives.