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Government urged to abandon 'failed' referral scheme

The government is being urged to abandon its referral scheme after 95 per cent of SME applications for loans were rejected. 

Government urged to abandon 'failed' referral scheme
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  • Staff Reporter
  • May 08, 2019
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The government referral scheme was launched after an announcement by the Chancellor in the 2016 Spring Budget.  It legally requires any of the main seven banks to refer businesses they turn down for funding to one of four designated online platforms (AlternativeBusiness Funding, Funding Options, Funding Xchange and Business Finance Compared).

The Corporate Finance Network has called the scheme a "harmful policy", after official statistic showed that 95 per cent of application for loans were rejected. 

Statistics from HM Treasury show that during the first 20 months of the scheme, 19,000 UK SME businesses were referred, but only 900 were successful at getting funding (at an average of £17,000) and accounting for a total of £15.6 million in total funding (up to mid 2018, the latest period data is available for). 

Kirsty McGregor, the chairman of The Corporate Finance Network, a UK-wide group of accountancy firms providing specialist financial advice to SMEs on funding, warns that the policy is both wrong-headed and a huge waste of public money through all the work involved in handing out meagre amounts to desperate businesses. 

Regarding the costs of the Bank Referral Scheme, Ms McGregor said that all the costs of administering the BRS are met by the taxpayer, including the assessing of at least 19,000 applications so far. 

"I have sought this cost with a Freedom of Information request, but the Treasury claims it is commercially confidential. 

"This seems pretty spurious as the only entities involved are the Treasury and the British Business Bank, both of which are government owned.  Sadly, it is more likely the case that the costs are embarrassingly high and they don’t want this revealed," Ms McGregor noted. 

She referred to the entire policy as "immoral". 

"It sounds good in theory that businesses who are rejected for funding by the banks should be offered other options.

"But the reality is by this stage such businesses have generally spent 4-6 months in the funding process and are getting desperate for the finance.  If they are offered high-cost finance from another lender, they will not surprisingly be very tempted to take it to tackle a short-term need while building up even bigger problems for the future," Ms McGregor warned. 

She suggested that SMEs should instead receive support and advice to address their rising costs and to implement some type of restructuring of their business. 

"There is no requirement within the government’s policy to bring in advice for these struggling companies," Ms McGregor said.

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