SME funding scheme not fit for purpose

A government scheme set up to help small businesses gain access to funding after being turned down by one of the main banks has been lambasted as a waste of public money, after official statistics show 95% of applications for loans are rejected

The bank referral scheme (BRS) was launched after an announcement by the Chancellor in the 2016 Spring Budget.  It legally requires any of the main seven banks to refer businesses they turn down for funding to one of four designated online platforms (Alternative Business Funding, Funding Options, Funding Xchange and Business Finance Compared).

The Corporate Finance Network, a UK-wide group of accountancy firms providing specialist financial advice to SMEs on funding says the scheme is ‘a harmful policy that generates so much cost and bureaucracy’, and is calling for it to be abandoned.

Treasury statistics show that during the first 20 months of the scheme, 19,000 UK SME businesses were referred, but only 900 were successful at getting funding (at an average of £17,000) and accounting for a total of £15.6m. These figures cover up to mid-2018, the latest period for which data is available.

Kirsty McGregor, chair of the Corporate Finance Network, claims the policy is both ‘wrong-headed’ and ‘a huge waste of public money through all the work involved in handing out meagre amounts to desperate businesses’.

The accountancy group has sought further information about the costs of administering the BRS, which is handled by the British Business Bank, but a freedom of information request to the Treasury for the figures has been denied on the ground of commercial confidentiality.

McGregor said: ‘This whole policy seems immoral.  It sounds good in theory that businesses who are rejected for funding by the banks should be offered other options. 

‘But the reality is by this stage such businesses have generally spent four to six months in the funding process and are getting desperate for the finance. 

‘If they are offered high-cost finance from another lender, they will not surprisingly be very tempted to take it to tackle a short-term need while building up even bigger problems for the future.

‘Instead most need support and advice to address their rising costs and to implement some type of restructuring of their business so they have lower costs that match our difficult and uncertain economic times.

‘There is no requirement within the government’s policy to bring in advice for these struggling companies, and it is important for their accountancy firm to be ensuring such businesses are getting independent expert advice.’

Pat Sweet

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