Bank Referral Scheme – what is it and how does it work?

19th February, 2018

The Bank Referral Scheme officially began in November 2016, and is designed to help businesses who have been unsuccessful in obtaining finance from one of the major banks and need to find finance elsewhere. My understanding to the background of the scheme:

  1. A number of businesses only approach their bank/main street banks for funding
  2. There are an increasing number of ‘alternative’ finance providers
  3. There has been a move to support SMEs and to reduce their dependency on the banks

How does it work?

Under the scheme, if an applicant is unsuccessful in obtaining finance from the bank (often because the applicant does not meet the bank’s credit criteria or the applicant doesn’t like the terms offered), the bank is required to refer the applicant to a designated finance platform. The ‘bank’ being referred to here is one of the nine participating banks.

There are exclusions from a bank making a referral, including if the requested loan is less than £1,000, or the loan period is less than 30 days. A more extensive list of exclusions can be found here.

The current designated platforms are Alternative Business Funding, Bizfitech, Funding Options and Funding Xchange. These platforms only facilitate lending and do not actually provide finance themselves.

After a referral to a platform is made, it is up to the applicant to decide if they wish to continue with the service or take any of the options they are given. There is no commitment and there is no cost for using the platforms. However, it is not guaranteed that alternative finance will be found, especially finance that meets the applicant’s needs

On referral to the platform, the information given by the bank may not be sufficient and therefore they may require more information about the business and what it intends to do with the money.

The platforms are required by the British Business Bank to have robust systems in place to protect against loss and unauthorised access of information etc. The platforms themselves also have a trusted third party perform due diligence on the lenders they represent.

The perceived benefit and success so far

As indicated earlier, small business owners are often time poor and consequently, do not have time to undertake extensive research on available funding. The scheme will hopefully lessen this problem and in addition, could also be a good source of business referrals for new, less established lenders. More information regarding the Bank Referral Scheme can be found here.

In August 2017, the government announced that its Bank Referral Scheme had helped 230 British businesses access £3.8m of funding in its first nine months. More details can be found here.

Other options

I like to think that my colleagues and I at PKF Francis Clark have well-rounded knowledge of funding sources across the spectrum of grants, debt and equity. Through the PKF network, we also have a link with another funding platform, Capitalise. We can often add value in the preparation and presentation of funding application.

That said, I can definitely see that the Bank Referral Scheme has a role to play and we shall be monitoring its evolution.

(Note: a number of alternative finance providers will be presenting at our ‘Finance in the South’ event and as at date of writing, there are spaces still available).

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