PEER-TO-PEER finance platforms will have access to thousands more businesses seeking loans, thanks to a new bank referral scheme that launches today.
Under the government initiative, nine of the UK’s biggest banks will pass on the details of small businesses they have rejected for finance to three aggregator platforms – Funding Xchange, Business Finance Compared and Funding Options.
These platforms will then share the details of the businesses seeking loans with alternative finance providers, who can provide quotes if they wish.
The scheme, which has been in the pipeline for two years, has the potential to put P2P lenders on the radar of thousands of businesses that would not have previously considered alternative sources of finance.
RBS, Lloyds, HSBC, Barclays, Santander, Clydesdale and Yorkshire Bank, Bank of Ireland, Danske Bank and First Trust Bank are the nine banks involved in the scheme.
“Any SME goes to the bank as their first port of call, but banks have been more constrained since the financial crisis,” Katrin Herrling, co-founder and chief executive of Funding Xchange, told Peer-to-Peer Finance News.
“It can be a bit scary if a bank manager says they can’t fund you, but it’s not necessarily a reflection on the business. This scheme gives businesses the confidence to move forward and not let rejection from a high street bank hamper their plans for growth.
“Alternative finance providers tend to be highly specialised in terms of credit risk assessment so are better positioned to offer loans in certain situations where banks will not help.”
Research cited by the Treasury showed that 71 per cent of businesses seeking finance only ask one lender and many of those give up on investment if they get rejected.
Last year 324,000 small- and medium-sized business sought a loan or overdraft, 26 per cent of these were initially declined by their bank and only three per cent of those declined were referred to other sources of finance.
Funding Xchange claims that a business using its platform can expect an average saving of £2,000 by comparing pricing from multiple providers – representing 10 per cent of the value of the average loan.
However, Herrling warned that the potential of the bank referral scheme depends on how good the banks’ frontline staff are at telling businesses about the initiative.
“There is an execution issue on the banks’ side,” she said. “They must convey the scheme as another reasonable option rather than a last chance saloon. We’ve been working with the banks for the past six months, educating them about what we are doing.”
Chancellor Philip Hammond said: “Small- and medium-sized businesses are the backbone of Britain’s economy and it is right they have access to a wide range of sources of finance.
“A refusal from a big bank should not be the end of the line for a small business and, thanks to the finance platforms being launched today, now it won’t be. We are determined to maintain the prosperity of our business sector and to support an environment where small businesses can grow and thrive.”
Keith Morgan, chief executive of the British Business Bank said: “This new government initiative, supported by the British Business Bank, has the potential to make a real difference to smaller business finance markets in the UK.
“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.”
Mike Cherry, national chairman of the Federation of Small Businesses, said: “Small firms struggling to access finance will now automatically have a new way to get the support they need to invest and grow.
“The FSB pushed hard for these reforms, and today’s announcement is good news as the government delivers on them. This change will boost alternative lenders, bringing more competition and choice in the market beyond the big banks.”