Treasury’s bank referral scheme falls flat, securing loans for only 1 in 20 small businesses

The Treasury’s bank referral scheme, which aims to increase access to finance for small businesses, has come under intense scrutiny after a recent audit revealed it secured loans for just one in twenty referred businesses.

Under the scheme, nine major banks are required to refer small businesses that refuse loans to independent platforms that connect them with alternative sources of financing.

Launched in November 2016, the program has facilitated 5,387 deals worth around £128 million – an average of £24,000 per loan. However, with total SME lending reaching £4 billion in the last quarter, these figures represent only a minor contribution to the sector. The Treasury admitted it had expected a “higher conversion rate” and admitted the number of companies accessing funding was “lower than expected”.

FundOnion chief executive James Robson criticized the initiative, noting that it had taken “ten years” for the government to acknowledge the limited impact of the scheme, which he described as “shockingly low” given the estimated £22bn funding gap facing SMEs. Robson stressed that the arrangement of nearly £1 million a month is “not even a drop in the ocean” when considering the financing needs of small businesses.

Despite the disappointing results, the Treasury defended the scheme, saying it “generally achieved its objectives” by increasing awareness of financing options and improving access to small lenders. However, Catherine Herling, CEO of Funding

Herling also pointed to the lack of feedback mechanisms within the scheme, which left many small businesses unsure as to why banks were rejecting their loan applications. Ian Cass, managing director of the Private Business Forum, echoed these sentiments, attributing the failure of the scheme in part to a long-standing disengagement of traditional banks with small business clients.

George Osborne initially announced the project in 2013, but the scheme’s launch has faced delays due to design disagreements. As it stands, companies that agree to participate are receiving offers from alternative lenders, including online providers and independent finance houses. However, the Treasury admitted there were “frictions” affecting the effectiveness of the scheme, such as requirements for physical signatures, data quality issues, and incomplete referrals by some lenders.