Mandatory bank referral scheme has delivered £4m to small businesses so far

By Ryan Weeks on 11th August 2017

P2P/Marketplace LendingAlternative CreditInvoice Funding

Newly designated finance platform ABF will join bank referral scheme.

Mandatory bank referral scheme has delivered £4m to small businesses so far

At inception, the mandatory bank referral scheme was terribly exciting. The plan was simple enough. Big banks would direct small business loan applicants which they had rejected to neutral finance platforms, which would then find a more suitable funding solution for the applicant, using matchmaking technology. Those solutions were to come from a whole host of potential providers: from peer-to-peer lenders, to building societies, to challenger banks.

The scheme took a long time to put together. Announced by government in August 2014, it wasn’t until November last year that the scheme finally went live. Initially there were three designated finance platforms: Funding Options, Funding Xchange and Bizfitech.

These three portals will soon be joined by a fourth. ABF (an acronym for Alternative Business Funding) is in many ways the grandfather of the scheme. Its founder and chairman Adam Tavener (pictured) is said to have first mooted the idea at an Innovators in Finance Conference at 10 Downing Street. Tavener says that designation seems “like the end of a chapter in this journey”. ABF will begin receiving referrals from 1st November this year.

ABF is part of Clifton Asset Management Plc, a 30+ year old small business finance firm which is perhaps best-known for its pension-led funding product.

Prior to designation, ABF has been originating deals from a mix of sources, including direct enquiries, partnerships and advisors, brokers and even from Santander Bank. The company has seen its successfully funded deals grow by 125 per cent since March 2017 versus the previous six-month period. Now ABF is hoping that designation will further accelerate that growth.

“The ABF team are looking forward to being placed at the heart of the process, to play a very active role in improving access to finance for the SME sector – widely recognised as the driving force of the UK economy,” said Tavener.

Small businesses may well be a driving force for the UK economy, but the £3.8m that has been arranged on their behalf under the bank referral scheme so far will be a disappointment to some. It’s early days, of course, and it must be noted that the £3.8m is spread across 230 small business loan applicants – all spurned by the big banks. That’s an average deal size of approximately £16.5k, which would suggest that it’s the very smallest businesses that are most benefitting from the scheme.

But there’s no getting around the fact: £3.8m is a disappointing number. Consider, as context, that Funding Circle – the UK’s largest peer-to-peer lender for small businesses – has lent nearly £800m in 2017 alone, according to AltFi Data. 

More than 8,100 SMEs have been referred under the scheme to date, which means that less than 3 per cent of those rejected by the banks are finding funds elsewhere. 

Still, it’s a (very small) step in the right direction. Stephen Barclay, the economic secretary to the Treasury, commented: “A refusal from a big bank should not be the end of the line for a small business and, thanks to our match-making scheme they have another avenue to try for funding.”

Barclay expects the numbers to increase as the scheme matures. Mike Cherry, national chairman of the Federation of Small Businesses, underlined the importance of that maturation process.

We welcome that Government has delivered the three platforms and congratulate the scores of firms that have benefitted in the scheme’s early stages,” he said. “To provide further economic benefit across the UK the scheme must now scale-up, with more referrals and more businesses successfully securing finance as a result.”


Helen McKay

23 Aug 2017 08:05pm

Totally agree with you Sean in relation to the alternative market being complementary. We can often be that vital stepping stone to get their business to the next level.

Tarek Kamal

19 Aug 2017 12:20am

At first glance, it seemed to be a great idea. But upon a closer look, it seems to me, one should expect that the likelihood of a smaller finance shop providing a loan to an SME, where a big bank has declined to do, will also be low. Inspite of their charging higher interest rates, we ought to operate under the assumption that the small shops understand a thing or two about credit risk also. Therefore, without the Credit Guarantee Scheme (unfortunately no longer in operation) or something else mitigating risk to sweeten the deal, it may be tantamount to insanity - doing the same thing over and over expecting a different result.

Sean O'Farrell

17 Aug 2017 08:44am

Mike, not sure your inference from this story is entirely correct. This scheme is new and it, naturally, has imperfections. I would say it needs more human interaction than just an email and/or a letter. Plus I don't agree with the defensive tone of your post. Alternative finance, in my view, is not about competing with or replacing banks, it's complementary to them. There are many cases where good businesses don't quite fit the bank lending model (usually due to lack of affordability, trading history or security) but they do work for alternative lenders. The banks with charge 3-4% and an alternative lender will charge probably 8-12% so it's just a different risk prospect and not one a bank would be comfortable with but that doesn't mean others won't be comfortable with it with a commensurately higher return. That's where Alternative Finance fits; as I say, not as competition to the banks but complementary and one level below. There is room for all and all play their part in tryouts by to get as many businesses funding as possible.

Mike Baliman

15 Aug 2017 08:58am

In other words banks aren't as dumb as they are portrayed and sensible lending criteria are sensible lending criteria whether you are incumbent or new.

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Alternative Business Funding
Funding Options
Funding Circle

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