Finance 3 November 2016

New government funding scheme highlights lack of financial awareness among small businesses

loan application
The vast majority of small business owners still only apply to their main bank for finance
Chairman of the National Association of Commercial Finance Brokers (NACFB), Paul Goodman, explains why small companies have, until this week’s bank referral scheme, been woefully ill-equipped to navigate the UK finance landscape.

This week, the Treasury announced a new government funding scheme to help small business owners turned down for loans find alternative means of accessing finance.

The referral scheme will see banks including RBS, Lloyds, Barclays, Santander and HSBC having to pass on details of businesses theyve rejected to three finance platforms namely Funding Xchange, Business Finance Compared and Funding Options.

Figures accompanying the launch prove that shining a spotlight on alternative routes to finance couldnt come at a better time.

Just over a quarter 26 per cent of SMEs are turned down for loans by banks, and yet only three per cent of those that are rejected seek alternative options.

That’s an estimated 100, 000 smaller firms being turned down for around 4bn worth of loans annually by the main British banks, according to a recent report by the British Business Bank (BBB).

This equates to a significant tranche of the business community that has simply stalled because initial attempts at accessing finance hit a brick wall.

This launch of the referral government funding scheme also follows hot on the heels of recent retail banking market investigation, which found that 90 per cent of small company owners get their business loans from their main bank compounding the concern that small business simply isnt aware of the diversity of finance available, and therefore feels obliged to increase their exposure to risk by sticking with just one lender.

For small businesses, these statistics are worrying not least because they highlight a fundamental lack of awareness of the funding options that are available beyond those offered by the high street lenders.

First off, it’s important to emphasise that these rejected loans arent being fuelled by a lack of available small business finance in the market.

In September, the National Association of Commercial Finance Brokers? (NACFB) annual survey, which looks at the amount of finance written by its broker members, found that lending levels to small businesses were up 30 per cent on the previous 12 months, which works out as an estimated 20.7bn worth of loans the seventh consecutive year total lending to small businesses has grown.

Even at the start of August, by which time the implications of Brexit were truly starting to sink in, there was a significant surge in funding enquiries to the NACFB’s findSMEfinance platform. Over the first two weeks, enquiries for finance exceeded 2m per day twice the level of the same period in the previous year.

That’s a significant vote of confidence for the small business community during a time of political and economic uncertainty.

What this also highlights is that there is a clear disconnect between the alternative finance community’s appetite to lend and SMEs lack of awareness of what kind of funding is available.

The new government funding scheme should help to redress this concern around clarity and transparency but does it go far enough?


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