Being turned down for a loan by the bank no longer means the end of the road for a small business
By David Powell
The latest update arising out of the Small Business Enterprise and Employment Act 2015, on which we have written previously, is a government and British Business Bank backed scheme to address the difficulties faced by SMEs in accessing appropriate finance. The Act was designed to make the UK a more attractive place to start, finance and grow a business and this is another step in reducing the barriers that many small businesses face in their drive to innovate, grow and compete.
The SME sector is seen as being vital to continued economic growth within the UK, but seven out of ten SMEs that are refused lending do not go on to raise alternative finance, according to the Department for Business, Innovation, and Skills (BIS). In 2015, 324,000 SMEs sought a loan or overdraft, of which 26% were initially declined and only 3% of those declined were referred to other sources of help. However, from today (1 November 2016) the long awaited ‘alternative finance platforms scheme’ comes into practice to provide SMEs with a greater level of information and to help them access finance needed to invest and expand.
Under the new scheme, which has taken some 27 months to implement, nine of the UK’s biggest banks who reject SMEs for finance will be required to ask these businesses if they want their details shared with three finance platforms, who will then refer the otherwise rejected businesses to challenger banks and alternative lenders.
Challenger banks and alternative lenders have been providing SMEs with other routes to finance for some time. They have also been establishing similar relationships with high street banks before this scheme came into effect. For example, Assetz Capital (one of several leading P2P and crowdfunding lenders that TWM acts for and works alongside) has been in discussions with various financial institutions since it started in 2013. Indeed, since February 2015 Assetz Capital has been in collaboration with RBS so that if RBS is unable to help an SME get the funding it needs, RBS will pass on relevant details to Assetz Capital, who will work with the business to develop an appropriate loan package to suit both the peer-to-peer investors and the SME borrower.
The alternative lenders are working hard, and have been for some time, to break down barriers to finance and this new government backed scheme will hopefully provide a greater lever of information and awareness to the SME market and particularly to those SMEs who would not ordinarily look any further than their high street bank for financial assistance. With more information and exposure to the options available, it is hoped the change will boost alternative lenders, make the UK lending market more competitive and, most importantly, support the continued growth of the UK SME sector.
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