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What’s the Fallout From the Referral Delay?

The government’s delay in implementing referral legislation could be catastrophic for some small businesses.

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Wednesday’s Queen’s Speech promised greater access to finance for SMEs, but fell short of confirming a mandatory system of referrals. The proposed system would require businesses that are rejected for bank funding to be subsequently directed to alternative finance providers. Fleximize – a flexible loans/revenue based finance business targeting small companies – argues that decision to delay the scheme flies in the face of the wishes of the vast majority of SMEs. Fleximize research recently revealed that 65% of SMEs believe that banks should be forced into a referral scheme (with just 7% against and the remainder undecided).

Max Chmyshuk, Founder and Managing Partner at Fleximize, commented:

“Documentation supporting the Queen’s Speech refers to the work already being done by the major banks and the BBA in signposting businesses rejected for finance to alternative sources and that stronger process will be put in place for businesses to be signposted to an even wider range of providers, brokers and advisors. But this doesn’t go far enough. We need less talk and more action. We can only hope that the final Small Business, enterprise and Employment Bill contains more positive initiatives.

“The longer this decision is delayed the greater the cash crisis becomes for SMEs and the less it seems that banks are willing to lend to them: there is a growing trend for banks to provide less credit as official figures reveal that lending to SMEs fell by £723 million in the first quarter of this year.

“In contrast, alternative lenders are picking up the pace having extended over £150 million to SMEs in the same quarter. Every month 5-6% more capital has been deployed from alternative sources than the month before.  Empowering finance providers with data would be like pressing the turbo button on the alternative lending market for SMEs – the growth could be explosive.”

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