Access to funding is a major concern for many small businesses. At a time when there is so much uncertainty about the direction of the UK’s economy, not having the money needed to keep going or grow can cause anxiety for a lot of companies. One of the most common reasons behind a lack of money is reluctance from banks to offer business loans.
To monitor how many businesses requested finance from banks, the government launched a scheme last autumn. The Bank Referral Scheme was designed to help the country’s biggest banks to record details of those companies they have turned down for loans and forward them to alternative funding options.
With Brexit initially causing uncertainty amongst SMEs, the government has recently unveiled a €300m loan scheme for small businesses, however, there remains some confusion regarding its implications. Moreover, whilst prior uncertainty meant SMEs were less likely to take out loans as Brexit negotiations progress, this has also had a positive effect on the financial markets, as Richard Perry, Hantec Markets states “Sterling has shot higher after finally there seems to be some signs of potential agreement over the UK/EU negotiations on Brexit’. In helping businesses to find funding through another source, it could set the wheels in motion for companies to get off the ground. However, as the scheme approaches its first anniversary, there are questions over what it has actually achieved.
Passing the buck
Statistics from 2016 reveal that there are around 5.5 million private companies in the UK, with 99.3% of them defined as small businesses. Among that number, there are many enterprises who will need a loan to help finance such items as a new office, company car or new member of staff to fuel any future growth.
For businesses who are turned down by one of the big banks for a loan, rejection can be hard to take. In guiding them to alternative lenders and other sources of finance, they are giving these SMEs a helping hand, but that alone isn’t enough.
The scheme should be looking into the reasons why so many companies are being turned away by banks in the first place. Many of these companies will have sound business plans and be financially solvent. Loaning just a few thousand pounds now and again would represent just a small drop in the ocean of a big bank’s balance sheet.
In focusing on why banks turn down businesses in large numbers, the government can then look at trying to persuade them to be a little more receptive. In just passing them onto other lenders, they are not being as helpful as they could be. There is no guarantee that alternative lenders will be more likely to grant money to businesses.
Other means of gaining finance such as FX trading may be more viable to SMEs. In many circumstances after being rejected by banks, looking to less labour-intensive ways of raising funds including crowdsourcing can work. However, it isn’t the best route for every business, as some of them may need more than just a few hundred pounds to keep going.
For the Bank Referral Scheme to get back on track, it should have a greater focus on getting banks to lend. Referring businesses to alternative funds before they get rejected will work too, as it gives them more time to prepare.
Finally, knowing how a successful funding bid works would be useful for smaller businesses. If those in charge of the scheme give them tips for applications, the chances of them gaining funding would improve significantly.