The Treasury’s bank referral scheme is criticised for its limited success in facilitating loans for small businesses.
- Originally, nine banks were to refer declined loan applicants to alternative financiers, but the results are disappointing.
- The scheme launched in 2016, but has only facilitated 5,387 deals, a small part of the £4 billion quarterly SME lending total.
- Critics highlight the Treasury’s failure to address a £22 billion funding shortfall for small businesses.
- The Treasury admits that businesses’ financial profiles are often inadequate, affecting the success of this initiative.
In 2016, the Treasury initiated a bank referral scheme aimed at assisting small businesses denied loans by major banks. These banks were expected to refer applicants to alternate financing platforms, creating a bridge for acquiring necessary funds. However, the scheme’s impact has been minimal, contributing to only a tiny fraction of the broader £4 billion SME lending figures seen in recent times.
The expectation that this scheme would significantly benefit small to medium enterprises (SMEs) appears to have been unmet. Out of the businesses referred, only 5% successfully secured funding through these alternative channels. This figure starkly contrasts with the Treasury’s initial hopes for a higher conversion rate of referrals into successful financing.
James Robson, CEO of FundOnion, has been vocal in criticising the scheme, noting the prolonged period it took for the government to recognise its limited success. He finds the scheme’s output insufficient when compared to the vast £22 billion funding gap that UK SMEs encounter. “Arranging around £1 million a month is not even a drop in the ocean,” he remarked, reflecting on the scheme’s minimal reach.
Despite these outcomes, the Treasury maintains that the scheme met its goals by enhancing awareness about alternative finance options. This viewpoint has not shielded the initiative from criticism regarding the ineffectiveness of converting awareness into action, where the actual support received by SMEs is concerned.
According to Katrin Herrling, CEO of Funding Xchange, a platform involved in the scheme, 94% of the businesses referred lack profiles deemed finance-worthy, which impedes their success in obtaining loans. This problem is compounded by the absence of a mechanism for feedback, leaving many business owners unclear about the reasons behind their loan rejections.
Moreover, Ian Cass, managing director of the Forum of Private Business, highlights the historical lack of engagement from traditional banks with smaller businesses as a contributing factor to the scheme’s underperformance. Initial enthusiasm surrounding the plan, first mooted by George Osborne in 2013, waned as it struggled with operational challenges, including the need for physical signatures and incomplete lender referrals.
The Treasury’s scheme, despite its intended goals, reflects the broader challenges faced in adequately financing small businesses in the UK.
