A GOVERNMENT scheme to refer small businesses rejected for bank funding to alternative finance such as peer-to-peer lenders has helped 900 firms secure £15m of funding since launch, new figures reveal.
In just the past 12 months, the Bank Referral Scheme has helped 670 small- and medium-sized enterprises (SMEs) raise £12m of funding, three times the amount raised in the previous year.
Loans ranged from £100 to £1.3m, with the value of the average loan since the scheme began standing at £17,285.
Since the fourth quarter of 2017, the conversion rate for SMEs has been more than 10 per cent, in line with market expectations.
The scheme was designed to help improve SMEs’ access to finance when their loan applications are turned down by mainstream lenders. Nearly 19,000 small businesses which were rejected for bank finance have so far been referred to alternative lenders.
The bank referral scheme, launched in November 2016, mandates nine of the UK’s largest high-street banks to pass on the details of small businesses they have turned down for loans to four finance aggregator platforms – Funding Xchange, Alternative Business Funding, Business Finance Compared and Funding Options.
These platforms then share details of the prospective borrowers with alternative finance providers, including peer-to-peer lenders, who can express an interest in the deal if they wish.
Adam Tavener, chairman of Alternative Business Funding, one of the designated funding platforms for the scheme, said the statistics are encouraging and point to a sea change in SME finance.
“A threefold increase in business funding through the scheme is a big deal, but I believe that we are really just at the beginning of a new way of doing things,” he said.
“Technology will play a huge part in the long-term viability of this process since the old school phone-based advisory offering is simply not scalable or commercially viable in this lending sector.
“At ABF, almost three-quarters of SMEs searching for funding on our platform successfully acquire finance without ever interacting with a person. That is a real testament to the effectiveness of what we have built, and evidences its capability to bring about real change in the world of SME finance.”
ABF also revealed it has helped facilitate one of the largest P2P deals through the Bank Referral Scheme.
Property developer County Down Developments borrowed £250,000 from Blend Network through the Bank Referral Scheme after it was rejected by Barclays.
This is believed to be the largest sum of P2P funding raised so far under the scheme, and it allowed the SME to build four luxury apartments in Bangor which it expects to deliver a £100,000 return on investment.
Company co-founders Albert McCann and Michael Carnduff explained that, despite their many years of experience in the sector, their newly established company did not meet Barclays’ strict funding criteria of at least six projects of four to five years’ construction experience.
“Initially, we were shocked that they wouldn’t consider a loan, but pleasantly surprised when, because of the Referral Scheme, they pointed us towards the funding platforms. We were expecting crazy interest rates in the region of 35 per cent, but we were wrong,” Carnduff said.
Blend Network agreed a 12 per cent interest rate based on a gradual draw-down of the money as required over an 18-month period.
As a result, County Down could pay suppliers promptly, leave money with them on deposit and negotiate discounts.
“Because of the funding structure, we’ve been able to plan effectively, had no downtime and the project is likely to be finished well ahead of schedule,” said Carnduff.