Bank Referral Scheme - is 3% success, success?

  • We suspected that the Bank Referral Scheme was going to be a slow starter when, five months ago, The Marketing Eye asked the Treasury’s Press Office how it was getting on. Despite the fact that no numbers were forthcoming, we were told that officials were pleased with the Scheme’s initial implementation phase and that many small businesses had been able to access the finance they needed as a result of its introduction.

    The Treasury's latest statement

    Well, now we know for sure. A statement issued by the Treasury last week disclosed that 230 small businesses – less than 3% of the 8,100 who applied for loans – had received a total of £3.8m from alternative lenders, which averages out at roughly £16,500 a time. So, having brought the horse to water, it is not so much having a gulp, as a sip.

    The Treasury also took the opportunity to announce that a fourth aggregator platform, Alternative Business Funding (part of Clifton Asset Management), will join the Scheme on November 1 this year, to “widen further the options available to businesses.”


    Mike Cherry, National Chairman, Federation of Small Business, welcomed the news, but said: “To provide further economic benefit across the UK, the scheme must now scale-up, with more referrals and more businesses successfully securing finance as a result.”

    To some, this might appear to be something of an understatement if you consider that Funding Circle alone is currently writing new business loans at the rate of £100m a month.

    However, it is surely true that such initiatives take time to gather momentum.

    Conrad Ford, the CEO of Funding Options, one of the original three aggregator platforms, said: “We, as the platform responsible for three-quarters of the loans that have gone through under the Scheme, are very happy with the first year.

    "By definition, SMEs that enter the Scheme are all challenged as businesses, otherwise they would be able to get an ordinary bank loan without any trouble. I see it as part of my job to focus on talking to bank relationship managers to help smaller businesses by spreading the word".

    But others in the industry see it differently, one saying: "The aggregators themselves need to take more responsibility and filter the applications. There is too much poor quality being distributed to lenders, which turns them against anything coming from the scheme".

    A lender commented: "It's still pretty chaotic to be honest. There's no consistency amongst the designated platforms on the terms on which referrals are provided and the due diligence that has been done".

    A faltering start, not a flawed start

    Surely the nub of the matter is that it is easy to knock, but the thinking behind the Bank Referral Scheme remains fundamentally sound. The  banks will continue to favour the larger loans for more established companies, but that doesn’t mean to say that smaller, younger, fiercely ambitious companies should be denied finance just because they don’t meet traditional banking criteria. Isn’t that why Alternative Finance came into being in the first place?

    The final word goes to Conrad Ford: "We read the same gloom and doom from the same journalists when they wrote about the Bank Appeals Process when it was introduced in 2011. Now that has proved to be a success, they are suddenly all fans. In reality, these things take time and I have no doubt that, in years to come, we will be able to look back and see that this was a good start.”

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