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

Newly designated finance platform ABF will join bank referral scheme.

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 1^st 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.”