Eight Years On, the Government's Bank Referral Scheme is still not Working

The Government's Bank Referral Scheme, launched in November 2016 to improve small business access to finance, is once again in the spotlight—and not for good reasons.

Designed to connect businesses rejected for loans by banks with alternative lenders, the scheme has underwhelmed from the outset. According to Funding Xchange, one of the platforms involved, 94% of businesses referred by banks failed to secure finance, mainly because they were deemed "not fundable." After eight years in operation, the numbers are sobering: just 5,387 deals worth approximately ￡128 million have been facilitated, averaging ￡24,000 per deal.

Compared to the ￡4 billion lent to SMEs each quarter, the scheme’s contribution to the sector is barely a drop in the ocean.

So, what’s going wrong?

The Crux of the Problem

One glaring issue is the quality of referrals. Banks claim they’re lending to most viable businesses, which infers that the cases being passed on lack a finance-worthy profile.

Research from the NACFB backs this up. A review of 7,000 SMEs found that 50% had issues like late filings, missed payments, or an over-reliance on overdrafts, which significantly hindered their funding prospects. Others suffered from a lack of trading history or a poor credit rating. While some of these issues are described as "readily fixable", it is no surprise that they are seen as warning signs by banks and alternative lenders alike.

Let's face it, not every business that applies for finance should be offered it.

Allied to the quality of referrals is the increasing distance between banks and the small business sector, and an ever-greater reliance on automated systems to determine creditworthiness.

Then there is the product set. There once was a time when a loan structure was infinitely flexible to match the needs of a particular borrowing requirement. Now it appears to be much more rigid. Overdrafts are harder to come by, and not all banks have an asset finance or invoice offer.

Finally, there is the scheme design itself. Although participation is mandatory for banks, it appears the commitment is more of a box-ticking exercise. Loopholes in the rules may be allowing banks to avoid serious efforts at referring or helping applicants fix applications.

The Case for Human Brokers

The fundamental flaw in the current system is that automated applications often lead to automated rejections. A machine cannot account for nuances like potential cash flow improvements or management changes that might improve a company’s financial health, or indeed where an alternative funding structure could be more appropriate. This is where human brokers could make a critical difference.

A skilled broker can help businesses identify and address the "readily fixable" issues holding them back, crafting a stronger, more compelling application before approaching lenders. For businesses already dealing with the strain of rejection, having a sentient human on their side could make the difference between success and failure.

Where Do We Go From Here?

The Treasury has acknowledged that the scheme has not delivered as expected and has slated a review of the scheme for 2025.

Personally, I would like to see

• Human brokers introduced into the process: Not as a replacement for the platforms but as a complement to their efficiency.
• The automated systems being fixed: If a business has “readily fixable” issues, why not build this into the referral criteria and resolve them before rejection?
• The scheme being made more accountable: Enforcing stricter rules to ensure banks take their referral obligations seriously.

If the Government is serious about keeping the scheme alive, the 2025 review needs to be more than a formality—it must be a turning point.