Finance · 3 September 2018

Refused a bank loan? These small businesses accessed finance through the Bank Referral Scheme

County Down
Michael Carnduff and Albert McCann of County Down Developments

As government figures reveal lending through the Bank Referral Scheme tripled in 2018, small business owners who received finance discuss their experiences of the match-making service.

Initially launched in November 2016, the Bank Referral Scheme was designed to help small business owners access finance if bank lenders were unable to offer what they needed.

Under the scheme, nine of the UK’s largest banks are obliged to pass on details of small firms rejected for finance to three funding platforms – Funding Options, Funding Xchange and Alternative Business Funding (ABF) – which in turn facilitate a conversation between the entrepreneurs and a list of registered alternative finance providers.

Read more: How the Bank Referral Scheme actually works

After a slow start – just £4m was delivered via the scheme in its first year – new figures have revealed that small business owners refused finance from a bank received £12m from alternative lenders in the last 12 months.

A total of 670 small firms raised funds through the Bank Referral Scheme, with loans ranging from £100 to £1.3m. The average loan secured was £17,285.

Commenting on the landmark, Adam Tavener, chairman of ABF, one of the designated funding platforms for the scheme, said: “A threefold increase in business funding through the scheme is a big deal, but I believe that we are really just at the beginning of a new way of doing things.

“Technology will play a huge part in the long-term viability of this process since the old school phone based advisory offering is simply not scalable or commercially viable in this lending sector. At ABF, almost three quarters of SME’s searching for funding on our platform successfully acquire finance without ever interacting with a person.

“That is a real testament to the effectiveness of what we have built, and evidences its capability to bring about real change in the world of SME finance.”

Watch: Why a NO from your bank is not the end of the road

Case study #1: £250,000 to provide services for deaf and disabled people

The founders of Appa Me Ltd. were declined for a loan by NatWest\RBS, but were offered a referral to the Bank Referral Scheme’s three designated funding platforms. They chose to seek funding through the ABF portal. The referral ended with a £25,000 loan from Fleximize to finance Appa Me’s move to larger premises with dedicated training spaces and a new open-plan wing.

Commenting on the match-making service, Imran Umar, Appa Me founder, said: “For a company working in a charity sector, that’s a huge outlay in short three-month period – without the money it would have been impossible for us to move to a larger office.

The expansion idea was because we wanted to offer more teaching opportunities and free drop-in sessions for those with needs, where funding doesn’t reach. Our new office gives us three training spaces, a section with five computers set up and ready to help deaf or disabled people search for jobs. We also now have a separate private room for remote Video Sign Language Interpretation.”

Case study #2: £250,000 to finance new luxury apartments

After house building specialist, County Down Developments, was turned down for a loan by Barclays, the bank offered a referral to the Scheme’s three designated funding platforms. County Down’s directors chose to seek funding through the ABF platform.  As a result, they were offered £250,000 by P2P funder, Blend Network.

For the founders, the most important aspect of the Blend Network funding was its flexibility. The arrangement provided a gradual draw-down of the money over an 18-month period on an “as required” basis. As a result, County Down could pay suppliers promptly, leave money with them on deposit and negotiate discounts.  

Michael Carnduff, co-founder of County Down Developments said: “Although we have almost 60 years of combined experience in the construction industry, the company itself was new, so unfortunately, we didn’t meet Barclay’s funding criteria of having a minimum of six projects or four-to-five years’ construction experience under our belts.

“However, we were pleasantly surprised when, because of the Bank Referral Scheme, Barclays pointed us towards the funding platforms. We were expecting crazy interest rates in the region of 35%, but we were wrong.”

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ABOUT THE EXPERT

Simon Caldwell is deputy editor at Business Advice. He has a BA in politics and communications from the University of Liverpool, and has previously worked as a content editor in local government and the ecommerce industry.

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