Taking its cue from the online dating revolution, the government has introduced a matchmaking service for entrepreneurs who can’t get access to finance.
From today, nine banks will be required to share the details of the small business they’ve rejected for finance with three new finance platforms: Funding Xchange, Business Finance Compared and Funding Options. These sites will allow entrepreneurs to search a range dozens of alternative finance providers like MarketInvoice, Fleximize and Yorkshire Bank.
If the rejected business gives permission for their details to be shared by their bank, these platforms will then share these details with alternative finance providers and facilitate a conversation between the business and any provider who expresses an interest in supplying finance to them.
RBS, Lloyds, HSBC, Barclays, Santander, Clydesdale and Yorkshire Bank, Bank of Ireland, Danske Bank and First Trust Bank, will all have to offer access to these finance platforms.
According to government data, most applications for finance begin and end with high street banks. Of the 324,000 SMEs that sought a loan or overdraft in 2015, 26% were rejected and only 3% were redirected to alternate sources of finance.
“People are missing out on growth opportunities and the government wants to change that,” ICAEW’s head of enterprise Clive Lewis told BusinessZone recently.
It’s a frustration that the new Chancellor Philip Hammond has openly acknowledged.
“A refusal from a big bank should not be the end of the line for a small business,” Hammond stated. “And, thanks to the finance platforms being launched today, now it won’t be,” the Chancellor said in a statement outlining the benefits of the new “matchmaking” service.
But according to Keith Morgan, CEO of the British Business Bank, it’s not just about increasing access to alternative finance. Morgan characterised the new scheme as an extra service banks can offer when they can’t help existing clients.
“It gives businesses additional opportunities to secure funding, alternative providers access to a bigger market of potential clients, and major banks an extra service to offer their business clients when they cannot themselves provide finance.”
Reacting to the news, Mike Cherry, the national chairman of the Federation of Small Businesses (FSB), welcomed the change. “The FSB pushed hard for these reforms, and today’s announcement is good news as the government delivers on them,” he said. “This change will boost alternative lenders, bringing more competition and choice in the market beyond the big banks.”
Cherry’s last point is a key one: the new initiative could be a huge boost for the rapidly growing alternative finance and peer-to-peer lenders; an industry still very much in the big banks’ collective shadow.
As Adam Tavener, chairman of the Alternative Business Funding portal (ABF), noted recently: “It’s pretty unfashionable to say it — for the overwhelming majority of SMEs, their bank is still the first place they go for funding.”
Easier and more controlled access to alternative finance should make the sector much more attractive to entrepreneurs.
The latest change is a logical continuation of the SME credit data sharing scheme introduced in April. April’s reform requires banks and credit reference agencies to share SME credit information equally with all providers.
The finance platform scheme is the logical continuation of this. According to government, it’s becoming easier for challenger banks and other lenders to make good credit decisions on businesses to help them get the funding they need.
“The launch of the Bank Referral scheme is a significant step in helping the UK’s small businesses source funding more easily,” says Katrin Herrling, co-founder and CEO of Funding Xchange. “Even if the bank says ‘no’.”
Francois is the deputy editor of BusinessZone and UK Business Forums.