The long-awaited Bank Referral Scheme took its first official breath on November 1 this year after a journey that began in earnest in 2015 when the Coalition Government put the ‘Small Business, Enterprise and Employment’ Act on to the statute book.
Subsequent legislation – the ‘Small and Medium Sized Businesses (Finance Platforms) Regulations 2015’ – gave Treasury ministers the powers to designate platforms to handle bank referrals and three were duly selected: Funding Options, FundingXchange and Bizfitech.
For the avoidance of doubt, the banks designated to conform to the new laws were listed as: AIB Group (UK), Bank of Ireland (UK), Barclays, Clydesdale and Yorkshire, Northern (Danske), HSBC, First Direct, Lloyds, RBS and Santander.
One of the reasons for setting up all this legal apparatus in the first place was to make sure that the banks understood unequivocally that their participation in the scheme was mandatory, not simply an optional choice if it took their fancy to do so. The other was to make sure that SMEs would be actively introduced to alternative sources of funding, rather than be left to read about them in the press or hear about them through a friend.
The necessity for bringing the proverbial SME horse to water was underlined by research that showed 71% of businesses seeking finance only approached one lender and simply gave up when turned down, whatever the reason. Other statistics showed that 324,000 SMEs applied for a loan or overdraft in 2015; 26% were initially declined by their bank, but only 3% of those were referred to other sources for help. The case was a compelling one.
So, is the horse drinking and is it working? The answer, apparently, is ‘yes’.
There are no official figures yet and those participating are not at liberty to give away too much because the Government wants to co-ordinate the dissemination of any detailed news. However, it seems the launch went without a hitch and that, more to the point, the banks are making a very good job of educating those SME borrowers who consent to having their details passed on to potential alternative providers.
Doubtless there will be some niggles along the way, but the portents look good. As something of an extra bonus, Conrad Ford, the CEO of Funding Options, wrote recently in The Gazette: “Perhaps more excitingly, the Competition and Markets Authority has made the new designated finance platforms central to recent remedies to improve choice and competition in SME banking; the Bank Referral Scheme may be just the start of a journey of transforming business finance.”
Let’s hope that he’s right.