The Treasury’s bank referral scheme was launched in 2016 with the hopes of providing a much-needed boost to small business lending in the UK. However, a recent official review has branded the scheme a “total failure” with only 5% of referred small businesses actually securing finance. This news comes as a disappointment to many, but it also raises important questions about the challenges facing SME lending in the UK.

The purpose of the bank referral scheme was to connect small businesses who were unable to secure finance from traditional lenders with alternative finance providers. This was seen as a potential solution to the long-standing issue of small businesses struggling to access the funding they need to grow and thrive. The scheme required nine of the UK’s biggest banks to refer small businesses they had rejected for loans to designated finance platforms, who would then offer them alternative finance options.

However, the latest review of the scheme has revealed that out of the 9000 small businesses referred, only 450 were successful in obtaining finance. This is a significantly low success rate and has led to criticism from business leaders and experts, who believe that the scheme has failed to deliver on its promise.

One of the main challenges impacting SME lending in the UK is the lack of awareness about alternative finance options. Many small businesses are not aware of the various finance platforms available and the different types of funding they offer. This lack of knowledge often leads them to rely solely on traditional lenders, even when they have been rejected by them. The bank referral scheme was supposed to bridge this gap by connecting small businesses with alternative finance providers, but it seems that this connection has not been made effectively.

Another challenge is the strict eligibility criteria set by alternative finance providers. While traditional lenders often require collateral or a good credit score, alternative finance providers may have different requirements such as a minimum trading history or a certain level of turnover. This means that even when small businesses are referred to these platforms, they may still face rejection due to not meeting the eligibility criteria. This highlights the need for more flexible and inclusive lending options for small businesses.

The lack of trust in alternative finance options is also a major challenge. Many small businesses are wary of non-traditional lenders and may perceive them as risky or unreliable. This is partly due to the lack of regulation in the alternative finance industry, which has led to some unscrupulous lenders taking advantage of small businesses in need of funding. The bank referral scheme was meant to address this issue by only connecting small businesses with designated and regulated finance platforms. However, the low success rate of the scheme has raised doubts about the legitimacy of these platforms, further contributing to the lack of trust in alternative finance.

One of the biggest challenges facing SME lending in the UK is the ongoing uncertainty surrounding Brexit. The prolonged negotiations and the possibility of a no-deal Brexit have created a sense of caution among lenders, making them less willing to take risks on small businesses. This has led to a decrease in the availability of credit for small businesses, making it even more difficult for them to secure the funding they need to grow and expand. The bank referral scheme was launched in the midst of this uncertainty, and it is possible that it has been unable to make a significant impact due to the challenging economic climate.

Despite these challenges, it is important to remember that the bank referral scheme was a well-intentioned effort to address the issue of SME lending in the UK. While the low success rate is disappointing, it has shed light on the various challenges that need to be addressed in order to make alternative finance options more accessible and effective for small businesses. The government has already announced plans to review and improve the scheme, and it is hoped that these changes will lead to a more successful and beneficial scheme for small businesses.

In conclusion, while the Treasury’s bank referral scheme may have fallen short of its initial goals, it has highlighted the challenges facing SME lending in the UK. These challenges must be addressed in order to create a more inclusive and supportive lending environment for small businesses. As the government continues to work towards improving the scheme, it is important for small businesses to also explore and educate themselves about the various alternative finance options available to them. With determination and perseverance, small businesses can overcome these challenges and secure the funding they need to succeed.