New Lending Referral Portals - What's the Deal?
SMEs need help to connect to finance providers who want to fund them. The Government recognises this, so since November 2016, when the British Banking Association launched the Banking Referral Scheme, banks have not turned away many SMEs without referring them to an alternative lender. But who are these alternative lenders and are they the only option?
The British banking industry has known since November 2015 that it had a year to design a referral system that meant no SME would ever get turned away for finance, without being referred to an alternative lender. In November 2016, the Government approved three online referral schemes: Business Finance Compared; Funding Options and Funding Xchange. There is talk in the marketplace of more to come too.
Here are answers to some of the questions SMEs are asking us about these schemes.
In referring me to these schemes, are the banks recommending the alternative finance providers?
No. The offer of a referral is a statutory obligation and should not be seen as a recommendation.
Do I have to use these referral platforms?
No. The bank asks your consent to provide them with your details because law requires them to. You do not need to provide consent. You can always go to the schemes – listed above – independently if you cannot find alternative funding yourself.
Are there any circumstances under which banks will not refer an SME via these schemes?
Yes. A Designated Bank will not offer a referral when:
The value of the finance facility applied for is less than £1,000;
The facility applied for is sought for a period of less than 30 days;
The bank is aware that the business is subject to a statutory demand for payment, enforcement proceedings or other legal proceedings in relation to payment obligations arising under an existing finance facility;
The bank is aware that the business is subject to a formal demand;
You have declined the bank’s offer of credit solely due to price considerations.
If I am not referred, or do not want to use the referral scheme’s credit broking services, is there anywhere else I can go to for help?
Yes. Foundation East, or any Responsible Finance provider in your region will be able to help you. Even if we cannot provide the loan ourselves, we are aware of the all the SME financing options available in our regions and if there is anyone who can help you, we will know who they are and be able to introduce you.
Where can I find out more information about these schemes?
The BBA’s publication Understanding Bank Lending Referrals to Finance Platforms is essential reading. The BBA has also recently published The Business Finance Guide in partnership with the Institute of Chartered Accountants in England and Wales (ICAEW). It is a unique guide that sets out the main things to consider and outlines sources of finance available to businesses. The online version includes an interactive tool allowing businesses to explore their financing options more easily and we highly recommend you try it.