After a tough initial year or so, the most recent government data suggests the Bank Referral Scheme is beginning to show signs of success in its mission to link SMEs seeking finance and alternative lenders.
Through the scheme, the nine largest banks are required to pass on the details of small businesses they have turned down for finance to three Government designated finance platforms which in turn share these details – in anonymised forms – with alternative finance providers.
The idea of the scheme is to connect SMEs with these providers to facilitate the flow of capital, however it has in the past been criticised for the level of uptake. In 2017, the first full year of the scheme, just 484 deals were done through the scheme, for example.
That number leapt up to 771 in 2018, and stood at 416 in the first half of 2019 – double the number of deals done in the first half of 2017.
Managing director for strategy, economics and business development at the British Business Bank, Alice Hu-Wagner, said: “One of the British Business Bank’s key objectives is to encourage and enable smaller UK businesses to seek the finance best suited to their needs. We’ve seen the value of lending through the government’s Bank Referral Scheme increase by a third over the last year, which points to its growing use amongst smaller businesses.
“From our research, we also know that if businesses don’t receive the full amount of financing they’re seeking, 49 per cent either cancel or put their plans on hold, or give up altogether. This makes the Scheme particularly important in the small business finance ecosystem, and the Bank is pleased to continue to support it, as it offers an additional option for businesses if they are unsuccessful in their original finance application.”
Over the history of the scheme, which launched in November 2016, almost £32.9 million worth of finance has been facilitated across the 1,695 deals – the large majority of which was lent since the start of 2018.
There is still a lot of room for improvement, though. Just 5.66% of those referred to one of the designated platforms went on to apply for and receive finance. As elsewhere, this is improving. Q2 2019 saw a conversion rate of 7.40%, compared to 5.91% in the same period 2018 and just 3.31% in the same period 2017.
Even with these improvements, the numbers here are a small drop in the ocean of SME finance. According to the British Business Bank’s July 2019 update, new bank loans to SMEs, excluding overdrafts, broke £23 billion in the first six months of 2019, for example.
In other words, the Bank Referral Scheme still has a lot of room to grow.
The increasing percentage of companies being successfully referred through the Scheme suggests SME knowledge and understanding of the scheme is increasing, hopefully also leading these companies to have a greater understanding of their financing options outside of traditional banking loans.