From today (1 November 2016) 9 of the UK’s biggest banks will pass on the details of small businesses they have rejected for finance to three finance platforms - Funding Xchange, Business Finance Compared and Funding Options.
Update: Alternative Business Funding Ltd. added to the list of designated finance platforms on 1 November 2017.
These platforms will then share these details with alternative finance providers and go on to facilitate a conversation between the business and any provider who expresses an interest in supplying finance to them.
These new rules make it easier for businesses to access finance when they have been turned down by traditional lenders.
RBS, Lloyds, HSBC, Barclays, Santander, Clydesdale and Yorkshire Bank, Bank of Ireland, Danske Bank and First Trust Bank, will all have to offer access to these finance platforms, with small business having to give their permission before their details are shared.
Research shows that 71% of businesses seeking finance only ask one lender and, if rejected for finance, many simply give up on investment rather than seek alternative options.
Last year 324,000 small and medium sized business sought a loan or overdraft, 26% of these were initially declined by their bank and only 3% of those declined were referred to other sources of help.
Chancellor of the Exchequer, Philip Hammond said:
Small- and medium-sized businesses are the backbone of Britain’s economy and it is right they have access to a wide range of sources of finance.
A refusal from a big bank should not be the end of the line for a small business and, thanks to the finance platforms being launched today, now it won’t be.
We are determined to maintain the prosperity of our business sector and to support an environment where small businesses can grow and thrive.
Keith Morgan, CEO of the British Business Bank said:
This new government initiative, supported by the British Business Bank, has the potential to make a real difference to smaller business finance markets in the UK. It gives businesses additional opportunities to secure funding, alternative providers access to a bigger market of potential clients, and major banks an extra service to offer their business clients when they cannot themselves provide finance.
Mike Cherry, National Chairman, Federation of Small Businesses, said:
Small firms struggling to access finance will now automatically have a new way to get the support they need to invest and grow. FSB pushed hard for these reforms, and today’s announcement is good news as the government delivers on them. This change will boost alternative lenders, bringing more competition and choice in the market beyond the big banks.
The alternative finance platforms scheme is the latest measure from the government designed to help small businesses access the finance they need to invest and grow.
In April, the government introduced the SME credit data sharing scheme which requires banks and credit reference agencies to share SME credit information equally with all providers. This increases competition in business lending by making it easier for challenger banks and other lenders to make good credit decisions on businesses to help them get the funding they need.