After years of lobbying and a similar amount of negotiation and planning, the Bank Referral Scheme launches this week.
Small businesses refused loans - of which there are estimated to be about 100,000 a year - will now be referred by the nine largest banks to alternative lenders using three platforms: Funding XChange, Funding Options and BusinessFinanceCompared.
The idea is to break the dominance of the Big Four banks in small business lending and create greater access to finance for SMEs.
Much store has been placed on the scheme by the Alternative Finance sector. With 80% of SMEs going to the bank first for finance, and the majority not looking any further, there is a significant amount of origination potential waiting to be soaked up - and prima facie, it will be much easier and less expensive to tap into it than having to originate loans directly.
The proof will be in the eating. Underwriting is a predictable challenge. The banks will have declined the facility for a reason and many alternative lenders have shown themselves to be cautious lenders - they would say prudent - either to protect investors in a peer-to-peer model or protect relatively small capital reserves when lending from the balance sheet. A significant majority of declines won't help with the Scheme's PR and might even dent the Government's enthusiasm for the sector.
Then there is the matter of volume. Will the Scheme create the wall of opportunity that its potential promises? Time will tell. We need the banks to comply with the spirit as well as the letter of the scheme to make it work (for example, not hiding away the referral in the small print somewhere) and we need borrowers to want to pursue the referral when they are given it. I was at an event last year, when Lloyds Bank said it expected to pass 'many thousands into the scheme every month', so there are grounds for optimism on the first part at least.
Anything new has its teething problems and there is bound to be a settling in period, none of which should detract from the enormity of the achievement in getting the Scheme launched. People like Louise Beaumont and others should be congratulated on having the vision and the sheer determination to see their idea pass from concept to the statute book. Now it is a reality, not least for them, I hope it is an outstanding success.
by Neil Edwards, 3 minute read
by Neil Edwards, 4 minute read