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UK government continues to talk up alternative lending scheme

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Saleha Riaz
·3 min read
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The Bank Referral Scheme matches businesses with alternative sources of finance such as revolving credit and asset finance and has raised £56m for businesses all over the UK in the last four years. Photo: Getty Images
The Bank Referral Scheme matches businesses with alternative sources of finance such as revolving credit and asset finance and has raised £56m for businesses all over the UK in the last four years. Photo: Getty

The government touted its Bank Referral Scheme, launched in 2016, for helping 889 businesses access investment in the twelve months to July 2020, and raise more than £23m ($30.1m).

“British businesses are getting more financing to help them expand and create new jobs thanks to government support, new figures show today,” the Treasury Department said.

The initiative matches businesses who have been turned down from banks for loans with alternative sources of finance such as revolving credit and asset finance and has raised £56m for businesses all over the UK in the last four years.

However, the national vice chair of the Federation of Small Businesses (FSB), Martin McTague, said that while the figures published today show “that the Bank Referral Scheme model is the right one... it’s still not firing on all cylinders.”

“Given that so many thousands of small firms have had bounce back loan applications rejected, we would’ve hoped to have seen more from the BRS over the course of this year,” he said.

He added that for full transparency, the FSB would want to see the numbers of those unsuccessful through the scheme: “if these are high then the scheme should be reviewed. If these are low then there needs to be a communications push around the scheme to raise awareness.”

“It’s important to remember that a lot of viable firms have borrowed to innovate in this crisis. They need our help over the coming months, starting with an extension to the grace period for bounce back loan facilities and window for deferral VAT payments, both of which are set to end in Spring of next year,” he noted.

The £23m figure appears to be a drop in the ocean when compared with the Treasury’s Bounce Back Loan Scheme, which McTague referred to, through which 1.4 million small and medium-sized businesses have raised over £43bn.

The Bounce Back Loan Scheme has been plagued with its own troubles, with reports saying fraudsters could make off with over £400m of UK taxpayer money stolen through COVID-19 support loans.

Jason Cozens, CEO of fintech Glint, also criticised the scheme, stating that "the fact that the scheme is necessary at all highlights the inequalities in the current banking system. Bigger players gain access to huge amounts of credit whilst some of the UK's most innovative SMEs are left scrambling around for the minimal funding on offer through alternative finance providers."

He noted that next year, more businesses are likely to leverage other funding opportunities or target alternatives to traditional banks “when it comes to storing their capital, seeking more stable havens that offer an increased chance to maintain purchasing power and mitigate against the risks of another financial crisis.”

“Gold and cryptocurrencies are just two of the alternative currencies businesses may increasingly look to take advantage of,” he added.

READ MORE: Applications for UK government-backed loans set to soar

Meanwhile, the government continues to talk up the Bank Referral Scheme. The economic secretary to the Treasury, John Glen, said: “It’s great to see businesses across the UK getting the investment they need to protect jobs and grow.”

The scheme was launched in November 2016 in response to evidence which suggested that after being turned down for a loan by their bank, small and medium-sized businesses rarely sought other options for financing, the government said.

It requires nine of Britain’s biggest banks to pass on the details of businesses they have turned down for loans to online credit brokers.

Other finance providers with different business models are often more willing to lend to these SMEs, the government explained, adding that the scheme helps to address this by giving businesses that are viable, but do not fit the risk appetite of the traditional banks, access to the finance they need.

WATCH: What is the Bounce Back Loan scheme?