Coffee with… Adam Tavener, Alternative Business Funding

The Bank Referral Scheme- FAQs

Introduced by the Government on 1 November 2016, the Bank Referral Scheme is an initiative brought in to help assist small and medium enterprise businesses to gain access to finances and create fair competition within the lending market, even if the business is considered ‘higher risk’.

The scheme involves all nine major banks in the UK and enables them to communicate directly with three online business loan comparison platforms: Alternative Business Funding, Funding Options and Funding Xchange.

The nine high-street banks involved in the scheme are Allied Irish Bank, Bank of Ireland, Barclays, Clydesdale and Yorkshire banks, Danske, HSBC, Lloyds, RBS and Santander.

The bank will share the details of an SME that has previously applied- and subsequently been rejected- for funding, with one of the finance comparison platforms as listed above. These comparison platforms then pass the request onto alternative finance providers such as Spotcap, increasing the opportunity for financial support despite any potential risk. It is down to the SME to choose which platform then acts on their behalf for financing, and there is an option for all 3 to act on their behalf.

We explore some of the frequently asked questions about the scheme to help answer some more common queries about the Bank Referral Scheme:

Q: Why is the Bank Referral Scheme needed?

A: The Bank Referral Scheme was introduced after it was shown that 71% of businesses seeking financial support typically approached just one lender, and if the SME was rejected, they were more likely to give up on gaining investment, than seek alternative options.

In 2016 alone, 220,000 small and medium-sized businesses requested a loan or overdraft, with 25% of these initially being declined by their bank. Of this 25% turned down for financial support, only 7% were then referred to further sources of help, indicating a major gap in funding support and awareness for SMEs.

Q: What impact has it had on UK business lending to date?

A: As of 30 June 2019, the latest Treasury data shows 30,000 small businesses that were rejected for finance from one of the big banks have been referred under the scheme, securing more than £32m of funding.

There has been a steady increase in SMEs using the scheme in recent years, with 796 businesses accessing £16m, between June 30, 2018, to June 30, 2019, alone, indicating a growing trend in using the Bank Referral Scheme.

It could be argued that one of the main reasons business lending has increased, is due to the introduction of this scheme that allows an alternative to SME that may have previously been turned down for finance.

Q: How does the referral scheme work?

A: The Bank Referral Scheme offers additional financial options to an SME, that traditional high street banks don’t. The more traditional banks have a more rigid risk measure that is considered before approving any loan or financial support, that often means a start-up or SME considered ‘too risky’ would get rejected for funding.

Using the Bank Referral Scheme opens up opportunities to businesses that may be viable but appear too risky on paper, supporting business growth and ultimately looking to improve the UK economy by encouraging young SME to prosper.

Q: How long does it typically take to hear back once funding has been requested?

A: Depending on how much as been requested and whether there are any further complexities involved with the SME, it is possible to receive funding within 48 hours of the request. One of the benefits of using the Bank Referral Scheme is the speed at which the request is handled, compared to the slower more traditional banks and high street lenders.

Q: What kind of information is shared between the bank and finance platform?

A: The type of information typically shared between a chosen high street bank and one of the finance platforms includes the full registered business name, address and email contact as well as any trading information such as age and legal status of the business owner. Information about the funding that has been requested will also be shared, such as the exact amount as well as the length of time the loan would be needed for.

If you’re an SME owner and want to understand more about the funding options that could be available to you, we would always advise getting in contact with a financial advisor to help explore the options available. The Bank Referral Scheme is a great option for SME that have experienced funding rejection and want to explore further options for financing their business.