The Treasury Department’s bank referral program, designed to increase access to financing for small businesses, has come under heavy scrutiny after a recent study found it has provided loans for only one in 20 businesses listed.
Under the scheme, nine major banks are required to refer small businesses they refuse for loans to independent platforms that connect them with alternative sources of financing.
Launched in November 2016, the program has enabled 5,387 deals worth around £128 million – an average of £24,000 per loan. Yet, with gross SME lending reaching £4 billion last quarter, these figures represent only a small contribution to the sector. The Ministry of Finance acknowledged that it had expected a ‘higher conversion rate’ and admitted that the number of companies that managed to obtain financing was ‘smaller than expected’.
FundOnion CEO James Robson criticized the initiative, saying it took “a decade” for the government to recognize the limited impact of the plan, which he described as “shockingly low” given the estimated £22 billion funding gap facing SMEs is confronted. Robson argued that arranging around £1 million a month “isn’t even a drop in the ocean” when looking at the financing needs of small businesses.
Despite the disappointing results, the Treasury Department defended the plan, saying it had “generally met its objectives” by raising awareness of financing options and improving access to smaller lenders. However, Katrin Herrling, CEO of Funding
Herrling also noted a lack of feedback mechanisms within the scheme, leaving many small businesses unclear as to why banks are rejecting their loan applications. Ian Cass, chief executive of the Forum of Private Business, echoed these sentiments, attributing the scheme’s failure in part to the long-standing withdrawal from traditional banks with smaller corporate clients.
Initially announced by George Osborne in 2013, the plan’s launch was delayed due to disagreements over its design. Under the current setup, companies that agree to participate receive offers from alternative lenders, including online providers and independent finance companies. However, the Treasury Department acknowledged “frictions” affecting the effectiveness of the program, such as the requirement for physical signatures, data quality issues and incomplete referrals by some lenders.