Under a recent government scheme, small and medium sized businesses struggling to obtain bank loans will be matched with alternative finance options. The initiative was launched in November 2016 to help business owners sustain and grow their company when traditional lenders are unable to assist.
How the Data Sharing Scheme Will Work
There are nine banks involved in the government data sharing scheme. They are:
- Clydesdale and Yorkshire Bank
- Bank of Ireland
- Danske Bank
- First Trust Bank
If your business loan application is rejected from one of these banks, your data can then be passed on to three alternative lenders – Funding Xchange, Business Finance Compared or Funding Options. There’s no additional work involved either – the application will be passed on automatically given your permission.
Why the Scheme Has Been Introduced
Government research suggests that SMEs don’t tend to exercise all the options available to them if their initial loan application is refused. Around 71% of smaller businesses seeking finance only ask one lender, usually a high-street bank, and then simply give up if rejected.
There’s also been a distinct lack of efficiency to how potential lenders collect, store and share SME business details. Banks previously had more data at their disposal than alternative online loan providers, resulting in decreased competition and inept lending policies.
In the 2015-16 financial year, 324,000 companies applied for a business loan or overdraft, of which a quarter were rejected. Only 3% of these would then go on to seek alternative finance – a problem highlighted by Chancellor Phillip Hammond:
“Small- and medium-sized businesses are the backbone of Britain’s economy and it is right they have access to a wide range of sources of finance.
A refusal from a big bank should not be the end of the line for a small business and, thanks to the finance platforms being launched today, now it won’t be.
We are determined to maintain the prosperity of our business sector and to support an environment where small businesses can grow and thrive.”
How your Business Can Benefit
If you’re struggling to acquire a business loan, the Treasury’s new finance scheme will help you exhaust alternative routes far easier. Increased data sharing between banks and other loan/overdraft providers will also increase competition, and thus standards, in the SME lending market.
Many smaller business owners experience cash flow problems early on in their existence. By obtaining additional finance, it could help you conduct fresh marketing campaigns, purchase new equipment or rent larger office space. Whatever the purpose of the loan, it can really open up a whole world of opportunity.
Loans don’t come without risk however, and if you can’t afford to pay the whole sum back, additional fees will be incurred, collateral may be lost and your credit rating will be affected. Professional financial advice should be sought before undertaking such a decision.
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