Banks must refer rejected SMEs to alternative lenders

11 August 2014

George Osborne and the government are fully behind the move to help small firms have a choice of alternative lenders when they are refused funds by banks. 

Banks which reject SMEs for funding will be forced to provide a referral to alternative sources, like crowdfunders, invoice finance and peer-to-peer lenders. 

At the recent Innovate Finance conference, George Osborne showed his support for the financial and technology sector as well as the growth of “alternative finance providers” as he promised to provide a £100m investment.

The Treasury and the Department for Business, Innovation and Skills report states, “The government has decided to legislate for a mandatory process in the Small Business, Enterprise and Employment Bill, where SMEs will be forwarded on to platforms that will help them be linked up with alternative lending opportunities”.

From January until March this year, statistics show that lending to small businesses by banks decreased by £723million. The Competitions and Markets Authority (CMA) originally conducted a research into business lending which changed the government’s outlook in the first place. Their research found that Lloyds Banking Group, HSBS, Barclays and RSB provide loans to only 80% to small businesses.

More and more alternative lenders are providing flexible and easy to access finance, a welcoming sign for businesses unable to go down the traditional route. 

Many customers are still unaware of alternative lenders so when some are turned away by the big banks, the future looks bleak. Now that banks are to refer these businesses to other lenders, there is a chance they can get the funding they need. 

Founding member Invoice finance provider, Platform Black, Louise Beaumont spoke: “We know that the High Street banks currently turn away around 40 per cent of loan applications from SMEs and evidence suggests that around one fifth of those do not approach providers of alternative finance because they are simply unaware of what is available.”

“Legislation to direct the banks to pass these customers on to alternative sources is a major step forward. The alternative finance providers stand ready to help these businesses and get the UK economy firing on all cylinders.”