The Bank Referral Scheme launched this week after years of lobbying, negotiating and planning.
Small businesses, refused finance by banks, will now be offered an alternative as banks are mandated to refer their declines (of which there are estimated to be about 100,000 a year) to alternative lenders using three platforms.
Director of Funding Solutions at Sedulo, Leyton Jeffs, takes a look at the scheme to discuss whether it’s a panacea for small business or an accident waiting to happen…
Whilst in principal, this looks like a HUGE step forward, I do wonder whether sometimes, a no will be replaced with a yes from the wrong funder.
To platform or not to platform
The intention of the scheme is that banks will refer to 1 of 3 chosen platforms; Funding XChange, Funding Options or BusinessFinanceCompared. These 3 platforms offer an algorithmic route to your “ideal” funder where as a customer, you answer a number of questions that then results in a chosen funder or a shortlist of chosen funders.
This complements where currently bank managers have informal relationships with independent advisers whereby the adviser can assist the manager in funding a suitable home for a clients funding in cases where the bank cannot help.
So what is the downside?
I can’t help think that even in the modern age we live in and embrace (well I have binned my paper diary for Outlook!) that a computer can’t replicate the work that an experienced finance professional can offer.
A pre-determined set of questions will give a set of answers but can it really be better than the probing and challenge you get from your trusted advisor(s)?
Does a computer see the personality of the business owner and take that into account when looking at the type of funding or the funder that would work best for them?
So, in conclusion
The fact that 100,000 businesses will have another option when their bank decline them can only be a good thing and I do understand to make things simple, using 3 large aggregators, make it easy for the banks to comply.
I do wonder whether this one size fits all approach will ever be better than the personal touch and experience customers get from local finance professionals or if bank managers will cut ties with their contacts in favour of a national platform.