Government announces launch of Bank Referral Scheme

The new government Bank Referral Scheme allows businesses to assess their option to benefit from alternative funding solutions.

HM Treasury has today announced the launch of the Bank Referral Scheme and designated Funding Xchange as a finance platform. As part of the scheme, Funding Xchange is working with nine leading UK banks to help secure funding solutions if the bank is unable to help.

In the new referral scheme, banks are now required to offer small businesses they have rejected for finance the opportunity to have details of their funding request shared with designated finance platforms. Funding Xchange, in turn, will help these businesses receive available financing quotes from a large panel of funding providers.

The government policy aims to help the 25 per cent of small business loan applicants who are initially declined by the banks. Many of these businesses simply cancel their growth plans rather than explore alternative options that may be more suitable. The British Business Bank estimates that 100,000 businesses have their applications for debt rejected each year, representing a possible funding gap in the UK of £4 billion.

Having been declined for a bank loan does not mean a business is not fundable. The business may be attractive to many finance providers on the Funding Xchange platform that look at creditworthiness in different ways from a bank. For example, a large customer contract in China might seem risky to some – but to funding providers who have access to international trade records, this may be a very attractive proposition.

Funding Xchange turns the traditional credit process on its head by ensuring lenders come to the business to make offers. With increasing numbers of alternative finance providers in the market, providing more than 100 finance solutions, Funding Xchange cuts through the noise and lets businesses see offers from lenders that want to fund them.

The business chooses the offer that suits them, knowing that lenders have assessed their request and want to fund their business. As a result, small business owners do not waste hours applying to lenders not able to fund them and choose the best terms – helping them save time and money.

Applicants can now compare options

Introducing competition into the funding market means that a business using Funding Xchange 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.

Katrin Herrling, co-founder and CEO of Funding Xchange, thinks that the Bank Referral Scheme is a significant step in helping UK small businesses source funding more easily.

Herrling says, ‘When we founded Funding Xchange, we started with the need to create transparency of available funding solutions – including terms and pricing – so that business owners can feel in control of the process and confident to move forward. This is already common in the personal finance market but has been lacking in SME funding.

‘To achieve the same aim for small businesses, we have developed a unique platform that encourages lenders to compete directly and provide offers to our customers. Both businesses and lenders see the terms offered by different providers – ensuring that a business, for the first time, has the chance to compare all available offers with one simple application.’

She adds, ‘We think this solution is particularly suited for the referral process as it gives those business owners who have been declined by banks a realistic view of lenders who want to fund them and the terms offered – building confidence that they understand the terms and pricing before pursuing one particular solution.’

Bivek Sharma, head of KPMG SBA, comments, ‘All too often, the only channel that small businesses explore is acquiring funding through their existing banking relationship – neglecting other lending options that could be far more suited to their structure and business.

‘The lack of transparency makes it difficult for SMEs to compare funding options, primarily as a result of the opacity and complexity of lending products and charges.

We partnered with Funding Xchange to make it easier for businesses to use the referral scheme to compare the alternative options available to them and access the funding they need to flourish and sometimes even to survive.’

Further reading on bank alternatives

Owen Gough, SmallBusiness UK

Owen Gough

Owen was a reporter for Bonhill Group plc writing across the and titles before moving on to be a Digital Technology reporter for the

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