John ConnorTreasury is consulting on how it might enhance the Bank Referral Scheme, which started in 2014 and requires 9 major lenders to refer SMEs to whom they have refused to lend to a finance platform that can match the SME with alternative lenders – so long as the SMEs agree. The scheme operates under the SME (Finance Platforms) Regulations 2015, alongside separate requirements that require designated banks to share information on their customers. So far, the scheme has enabled over 5,000 loans worth over £128m, with an average deal size of £240,000. But only around 5% of businesses that were originally rejected for finance manage to get finance through the scheme, and many never succeed in getting the finance they need.
As part of the Government’s ongoing commitment to giving SMEs access to appropriate and affordable finance, it is interested in understanding better what levers could support and improve how the lending market works and where there is a role for government.
The Government has issued a call for evidence on its SME Finance and the Small Business Strategy already, and is now looking at whether the BRS could, with enhancements, better support SMEs’ access to finance. In particular, it thinks the scheme could maybe benefit from a refresh since BBB data shows that challenger and specialist banks had around 60% of gross new SME lending in 2024, so the 9 lenders currently designated represent a far lower percentage of relevant lenders than was the case when the scheme was set up, although they still receive a high number of applications.
While under the current rules the rejected SME must agree to be referred to the scheme, it is not immediately identified, with identification information only being shared if an alternative lender asks for it.
Treasury welcomes comments particularly on:
- the definition and scope of an SME;
- the designation criteria, and also whether lenders should be able to opt into the scheme if not designated;
- whether it should designate any additional finance platforms (it is not planning to do so);
- how to encourage greater SME engagement with the scheme;
- whether the circumstances that trigger a referral are still appropriate;
- whether to require designated banks to provide reasons for objection to help SMEs in seeking alternative finance;
- whether members of the scheme should be required to refer SMEs to advice or other services;
- whether there is too much friction in the referral and onboarding process and how this could be improved; and
- how the scheme would interact with opportunities that Open Finance may present in the future.
The consultation closes on 22 December.