The Treasury's bank referral scheme, intended to increase finance access for small businesses, has come under heavy scrutiny after a recent review revealed it has secured loans for only one in twenty companies referred.
The scheme requires nine major banks to refer small businesses they decline for loans to independent platforms that connect them with alternative finance sources.
The scheme has facilitated 5,387 deals worth around £128 million—averaging £24,000 per loan. However, with gross SME lending at £4 billion for the recent quarter, these figures represent only a minor contribution to the sector. The Treasury acknowledged a "higher conversion rate" was expected, and the number of businesses securing finance was "smaller than anticipated."
The CEO of FundOnion criticized the initiative, stating it took "ten years" for the government to acknowledge the scheme's limited impact, which he described as "shockingly low" given the estimated £22 billion funding gap facing SMEs. He contended that arranging approximately £1 million a month "is not even a drop in the ocean" when considering the financing needs of small businesses.
Despite the underwhelming outcomes, the Treasury defended the scheme, saying it had "generally met its objectives" by raising awareness of financing options and improving access to smaller lenders. However, the CEO of Funding Xchange, one of the scheme's referral platforms, pointed out that 94% of referred businesses lack a finance-worthy profile, often due to factors such as limited trading history or poor credit.
The managing director of the Forum of Private Business attributed the scheme's failure in part to long-standing disengagement from traditional banks with smaller business clients. The Treasury acknowledged "frictions" impacting the scheme's effectiveness, such as the requirement for physical signatures, data quality issues, and incomplete referrals by some lenders.