Bank Referral Scheme Not Forthcoming for UK’s Small Companies


Bank loans are notoriously difficult to get for small and medium sized enterprises in the UK. Even though economic growth often comes from the smallest parts of the business sector, small companies have the hardest time getting financing for their fledgling business ideas.


Small Business Lending on the Decline

Small business lending continues to be on the decline to a low of £5.5bn in June 2017 which is the lowest recorded. The problem was recognised a year ago by the government when they announced a planned scheme to get high-street banks to refer the businesses they declined finance to, to other lenders who may be more helpful.

British Business Bank Still Sees the Need

The British Business Bank, an economic development arm of the government, took point on the referral scheme to get UK’s banks to refer failed applicants to alternative lenders that may be more amenable to start-up and SMEs lending. This little-known part of the banking community has the express goal to enable SMEs to again access to lending.

Big Employers, Little Love

It is ironic that the SMEs in the UK employ over 25 million people – at least half the UK’s adult workforce – across over 5.2 million small companies. Many of these companies employ fewer than 5 people and play a vital role in the sustainability and growth of local economies, to say nothing of being important employers in their own right.

The lack of willingness by big banks to dig their toes substantially into lending to the backbone of the economy is a frustration for many entrepreneurs who see it as a sign that the UK is not receptive to entrepreneurship in general, unlike in the United States.

Fewer Small Businesses Seek Alternative Finance

For smaller businesses that get refused lending by a major UK bank, as few as 30 percent go on to seek alternative business lending from different suppliers, according to the Department for Business, Energy & Industrial Strategy.

The lack of an organised, systematic referral system is blamed because perhaps without one, companies feel like in the absence of a reliable appeal process, their future chances of securing viable lending is close to nil.

By offering a defined referral system, businesses that form a smaller part of the economy can at least enter into discussions about their options with alternative lenders who may be more receptive. There is a great need for the referral scheme to be set up soon, otherwise encouraging growth with SMEs could stall out.

Business leaders hope that the British Business Bank will move faster to put a workable scheme in place that places the responsibility squarely on the shoulders of the UK’s banking sector to at least help refer failed applicants and not abandon them completely.