Chancellor to Force Banks to Refer SMEs to AltFinance

By AltFi on 19th March 2014

P2P/Marketplace Lending

ISA inclusion is not the only positive development to come of today’s Budget. Over 250,000 SMEs rejected for Bank funding each year could soon be referred to alternative funding providers…

Chancellor to Force Banks to Refer SMEs to AltFinance

As announced in the budget, Mr. Osborne will launch a consultation into whether to legislate the Banks to refer SMEs they’ve turn down to alternative funding providers. It’s a move that Vince Cable - the Secretary of State for Business, Innovation and Skills - hinted might happen at last Tuesday’s AltFi Summit. Now it appears to have come to fruition.  

Adam Tavener, Chairman of pensionledfunding.com – the catalyst for the launch of the alternativebusinessfunding.co.uk portal – commented:

“Today’s announcement by the Chancellor could pave the way for banks to refer businesses to the alternative funding providers via our recently launched portal - which signposts business owners to a variety of different funding options.”

“This is also a real opportunity for a collaborative culture to develop between the banking and alternative sectors, not just to refer businesses but to work together on multi source deals that provide exactly the right shape of funding package for the business owner. Better signposting would give businesses – particularly SMEs - safe access to approved lenders, while helping banks keep UK businesses growing by encouraging innovative or complimentary funding.”

"It’s not that banks don’t want to lend to businesses, but they are often prevented from doing so by capital constraints. They have also been loathed to refer rejected SMEs to specific alternative finance providers because of the regulatory risk involved.”

Louise Beaumont, Co-Founder of Platform Black – one of the founding alternative finance providers behind alternativebusinessfunding.co.uk, said:

“We wholeheartedly support the commitment from the Chancellor to launch a consultation on how best to ensure that the banks refer those SMEs they are unable to fund to alternative funding providers. Last week the Business Secretary singled out SME finance portal, alternativebusinessfunding.co.uk, as the place to signpost those SMEs looking for non-bank funding.”

Alternativebusinessfunding.co.uk was born out of a collaboration between the UK’s seven leading alternative finance providers.  Collectively, CrowdCube, Funding Circle, Market Invoice, Platform Black, Seedrs, Zopa and Pensionledfunding.com account for 85% of the alternative non-bank funding market and have provided to date more than £580m to SMEs, supporting around 80,000 jobs.”

“The overwhelming impediment to Britain’s small businesses getting the funding they so desperately need has quite simply been that they do not know where to turn if the banks are unable to provide a product that is suitable for them.  George Osborne announcing that a consultation process will be launched on how to bring this referral process into law is the shot in the arm that the UK’s economy needs – especially as Britain’s small businesses account for over 48% of the UK’s private sector turnover.  This is also an extension of the informal way in which some of the banks have already started to refer some of their SME clients onto the alternative funding providers and will help ensure that all SMEs receive an opportunity to consider all finance options available to them.”

Liberum, the investment bank, forecasts that alternative funding providers could originate £535bn in financing by 2024, which would represent 50% of the gross volumes in the UK and US consumer and UK SME market.  This backing from George Osborne today significantly helps make this forecast a reality.”

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