Big banks will have to transfer all the applications from the small businesses for a loan to their rivals.
During the next 3 months, there will be a special Treasury initiative started. It will help small businesses achieve their goals without being intimidated by the big banks that reject their loan applications.
9 large banks of the country will have to transfer all the applications from small businesses that they usually reject to independent finance portals. It’s all on the legal basis, and the businesses that agree to receive alternative options will get offers from a wide range of other organizations like the Funding Circle online platform or the Bibby Financial Services independent finance house.
George Osborne suggested such an initiative two years ago, but the development was halted by the disputes on what banks will have to transfer the applications to other money providers.
According to the rules, the banks will be obliged to refer the applications of companies they are turning down to one of the three official finance portals.
Royal Bank of Scotland, Lloyds, Barclays and HSBC control more than 80 per cent of the small business banking market.
There are doubts among some lenders about the scheme’s effectiveness, however.
Ryan Weeks, editor of AltFi, an online publication for the alternative finance industry, said: “Nobody quite knows how much volume will be generated when it goes live.
“The alternative finance platforms remain sceptical and even the designated referral sites disagree on the numbers.
“But perhaps the bigger unknown at this stage is what the quality of referred loan applicants will be.”
Three independent finance portals are set to run the scheme when it is launched: Funding Options, Funding Xchange and Bizfitech. Conrad Ford, chief executive of Funding Options, said: “The referral scheme has big potential.
“The major banks would admit they turn down two hundred thousand SME finance applicants each year and the BBA’s own surveys suggest that 40 per cent of these firms would accept a referral to government designated finance platforms.”
The service will be free for small companies. Portals will make money by charging a referral fee to lenders that win business through the new system.