More choice for businesses refused credit
A fourth finance platform has been added to the government’s finance scheme that requires banks to refer businesses they have refused credit to alternative providers, writes ICAEW head of enterprise Clive Lewis.
In November 2016, the government introduced a scheme for businesses that had applied to a bank for a loan or an overdraft and had been refused. The scheme requires banks to refer the business to three finance platforms that offer a wide range of debt finance.
A year later a fourth finance platform – Alternative Business Funding Ltd – was added to the three original platforms: Funding Xchange, Business Finance Compared and Funding Options.
Research shows that 71% of businesses seeking finance only ask one lender and, if rejected for finance, many simply give up on investment rather than seek alternative solutions.
Busy business owners do not have the time to research the market and to decide which type of finance is right for their business. Many simply seek finance from their local bank and give up if refused.
How does the scheme work?
If a business approaches one of the major banks and is refused a finance application, the bank is legally required to offer the customer a referral to the three (now four) government approved finance platforms. The scheme operates for debt finance between £1,000 and £25m.
If the business agrees to a referral, the bank will send the relevant platforms specific information such as the amount and type of finance requested, and date the business requires the finance.
What does the platform do with the information?
The platform may request additional information from the business before deciding which type of finance will be most appropriate for the business. It then makes the referral to those finance suppliers. It is up to each individual finance supplier to decide whether to offer finance to the business and, if so, under what terms.
How do the finances work?
If the finance supplier makes an offer which is accepted by the business, the platform will receive a commission from the finance supplier to cover the platform’s costs. The business makes payments of interest and repayment of the amount borrowed to the finance provider...
Which banks are covered?
The banks required to refer businesses are RBS NatWest, Lloyds, HSBC, Barclays, Santander, Clydesdale and Yorkshire Bank, Bank of Ireland, Danske Bank and First Trust Bank.
Clive Lewis is Head of Enterprise at ICAEW.
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