The Treasury’s bank referral scheme has been labelled ineffective, with only 5% of small businesses securing finance.
- Launched in 2016, the scheme mandates major banks to refer declined loan applicants to independent finance platforms.
- Despite facilitating over 5,000 deals, the scheme’s impact on the £4 billion quarterly SME lending is minimal.
- Critics highlight substantial ‘frictions’ and a lack of feedback as major flaws in the programme.
- Key figures argue the gap between funding needs and secured deals remains unaddressed, questioning the scheme’s efficacy.
The Treasury’s bank referral scheme, initiated in 2016, is under scrutiny for its lack of effectiveness in aiding small businesses. Nine major banks are required to refer loan applicants they decline to alternative finance platforms, aiming to increase SME lending opportunities. However, only 5% of these referred businesses have successfully secured loans, casting doubt on the scheme’s efficiency.
While the scheme has facilitated 5,387 deals amounting to approximately £128 million, it forms a minuscule part of the broader £4 billion SME lending conducted in the last quarter alone. Such figures underscore the limited contribution of the initiative to the sector, despite its intentions to bridge the financing gap.
James Robson, CEO of FundOnion, expressed severe criticism of the scheme, stating that it took a decade for the government to recognise its limited impact, describing the results as ‘shockingly low’ given the estimated £22 billion funding gap for SMEs. According to Robson, generating about £1 million monthly barely scratches the surface of what is needed by small businesses.
The Treasury maintains that the scheme has ‘generally met its objectives’ by increasing awareness of finance options and better connecting SMEs with smaller lenders. However, Katrin Herrling, CEO of Funding Xchange, one of the referral platforms, highlighted that 94% of businesses referred lack a finance-worthy profile, often due to insufficient trading history or poor credit scores. She also cited the absence of feedback mechanisms as a significant issue, leaving businesses unclear about the reasons behind their loan rejections.
Ian Cass, managing director of the Forum of Private Business, attributed the poor results to an enduring detachment between traditional banks and small businesses. The scheme, initially proposed by George Osborne in 2013 and delayed due to design disagreements, was meant to offer alternative lending routes, including online lenders and independent finance houses. However, the Treasury admits that ‘frictions’ such as the need for physical signatures and incomplete referrals continue to hinder its success.
The Treasury’s bank referral scheme, despite its intentions, remains largely ineffective with minimal impact on the SME lending sector.
