Less than three per cent of SMEs financed through bank referral scheme

Less than three per cent of SMEs referred to ‘alternative’ lenders through the bank referral scheme have obtained finance, the Treasury has revealed.

Just 230 small businesses found success through the scheme, borrowing £3.8 million, out of the total 8,100 businesses which have been referred.

The scheme, announced in 2014, was intended to better match businesses rejected for bank finance with alternative finance providers. It became law for the nine biggest lenders to refer businesses from 1 November 2016.

Businesses must be referred to three alternative lending aggregators – Funding Xchange, Business Finance Compared, and Funding Options.

Expert suggested that the large majority of businesses being referred to such firms are sole traders or have less than one year of trading history, making them less eligible for financing.

Katrin Herrling, chief executive and co-founder of Funding Xchange, said: “To make the scheme more successful, there needs to be better education around what types of funding are appropriate for businesses.

“Some firms applying for debt funding should be raising equity through friends and family, for example.”

However, the City Minister Steve Barclay remained optimistic for the scheme’s future.

He said: “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 City Minister Stephen Barclay.

“A refusal from a big bank should not be the end of the line for a small business and, thanks to our match-making scheme they have another avenue to try for funding.

“Over 200 businesses from beauticians to forklift truck training firms have received the money that they need to grow and we expect this number to increase as the scheme matures.”