THE TREASURY is expected to release its first public figures on the bank referral scheme in the coming weeks, with the commercial finance sector divided on the initiative’s success.
The government-backed scheme launched last November to much fanfare, mandating nine of the UK’s high street banks to refer rejected small business borrowers to three alternative finance aggregator platforms.
These aggregators – Funding Xchange, Business Finance Compared and Funding Options – then share the details of the businesses seeking loans with alternative finance providers, including peer-to-peer lenders, who can provide quotes if they wish.
But reports of slow uptake have dogged the scheme, with the Treasury commissioning Professor Russel Griggs to undertake a review of its efficacy in April.
Peer2Peer Finance News understands that the first statistics on referrals will be published imminently, although it is unconfirmed whether the outcome of Griggs’ review will be included in the Treasury’s announcement.
It is believed that Griggs has already completed his review and the Treasury is engaging with designated banks on his recommendations.
The Treasury declined to comment.
The possible benefits of the scheme for alternative lenders and business borrowers alike are clear. The British Business Bank’s Small Business Finance Markets report, released earlier this year, showed that over two thirds of smaller businesses seeking finance only ask one lender and, if rejected for finance, many simply give up on finding investment.
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However, several P2P business lenders who were unwilling to speak openly about the scheme have privately criticised its implementation ahead of the Treasury’s announcement.
A spokesperson from one prominent platform said that they had been rejected by one of the three finance aggregators, while an agreement with another had not produced many deals. The spokesperson also questioned the role of the aggregators, arguing that they create a middleman – and extra costs – that are not needed. They said the platform had more success obtaining referrals from banks directly.
And a source at another high-profile P2P business lender said that the scheme “hasn’t been a roaring success so far”.
Danske Bank, one of the nine high street lenders referring business to the aggregators, also admitted that take-up has been slow.
“We are committed to the scheme and are advising customers of their options, however take-up from customers has been slow at this stage,” said a spokesperson. “We have a very high approval rate in the first place though.”
Paul Goodman, chairman of the National Association of Commercial Finance Brokers, went further in his critique, saying the scheme is “doomed to fail” due to its “sausage machine-like approach” to small- and medium-sized enterprise (SME) finance.
“While the key objective of the bank referral scheme – namely ‘speed-dating’ the finance needs of SMEs with finance providers – remains sound, the scheme is flawed in the detail,” he said.
“There is no off-the-shelf product in the commercial finance sector – that’s because the needs of small businesses are diverse.
“Assuming that businesses have a broad enough understanding of the vast array of finance options available to them will mean a large number of SMEs will likely end up in the wrong deals.”
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However, several commercial finance professionals have defended the initiative’s progress so far.
One source at a finance aggregator platform said that there had been “a lot of nonsense” about the scheme, but in reality it has been very successful. Much of the criticism of the scheme has come from lenders that had not even applied to be on the aggregator’s platform, the source argued.
Katrin Herrling, chief executive of Funding Xchange, said that it wasn’t fair to judge the scheme in terms of specific referral volumes at this stage.
“It is the overall process that has to demonstrate it is delivering results,” she said. “That is either helping businesses access to finance or understanding how to get ready.”
Mike Cherry, national chairman of the Federation of Small Businesses, said that the scheme “promises to be a real lifeline for viable small businesses that have been turned down by traditional lenders”, but underlined the need to see data on how many successful referrals have been made.
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