Treasury’s bank referral scheme provides alternative loans for just 6pc of small firms

The programme has helped just under 1,700 of the 30,000 firms that have passed through the system in just under three years.

Fewer than six per cent of small firms turned down for a bank loan have found alternative finance under the Treasury’s Bank Referral Scheme.

The scheme was launched in November 2016 to boost investment in small businesses, after government data showed that almost half of firms turned down by their local bank either delay their plans, or, give up altogether.

Britain’s vital 5.6 million small firms, employed 16.3 million workers, with a combined annual turnover of £2trn, or 52 per cent of all private sector revenues last year, according to the Federation of Small Business.

Under the referral programme Britain’s nine largest banks must pass on the details of businesses they have turned down for loans to one of three online credit brokers - Alternative Business Funding, Funding Options and Funding Xchange - who then share these details with a range of alternative finance providers.   

‘Strength to strength’

However, the scheme has been able to fund 1,695, or 5.7 per cent, of the 29,964 firms that were denied bank finance since it was launched almost three years ago, according to Treasury data. These firms were loaned £32m over that period.

But the amount the programme raised has jumped 35 per cent to £16.7m for 796 firms in the year to the end of June, compared to £12.4m for 680 firms in the previous 12-month period. The average size of loan each business was granted also lifted by 12 per cent to £19,399. 

Economic secretary to the Treasury John Glen said the scheme was going from “strength to strength”.

He added: “It’s not right that so many small and medium-sized businesses simply had to give up when they were turned down by their bank for a loan.

“I now want to see more of our trailblazers and entrepreneurs use this scheme to get the backing they need to grow and help boost our economy.”

Higher lending

The scheme is administered by the government’s small business-focused lender, the British Business Bank, on behalf of the Treasury.

The British Business Bank managing director for strategy, economics and business development Alice Hu-Wagner said: “We’ve seen the value of lending through the government’s Bank Referral Scheme increase by a third over the last year, which points to its growing use amongst smaller businesses.

“From our research, we also know that if businesses don’t receive the full amount of financing they’re seeking, 49 per cent either cancel or put their plans on hold, or give up altogether.”

The nine high-street banks in the scheme are: Allied Irish Bank, Bank of Ireland, Barclays, Clydesdale and Yorkshire banks, Danske, HSBC, Lloyds, RBS and Santander.