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 Accounting News & Insights

Alternative Lenders get Budget Lift

31st March 2014

Banks could be forced to direct rejected loan applicants to alternative finance providers, the government has announced in the Budget.

Under new legislation banks could be legally obliged to help match small firms that are turned down with alternative lenders.

The government will shortly launch a consultation on mandatory referrals in an effort to increase sources of finance for small businesses and spur on the alternative marketplace.

James Meekings, co-founder of Funding Circle, told our sister title BusinessZone.co.uk: “We are already talking to banks about the possibility of lead referrals for small businesses. We do see ourselves as complementary to banks.

“A core part of a bank's business is having a positive banking relationship with their customer so partnering with a non-bank funder where there is no risk of them losing their current account business makes a lot of sense.”

Marc Glazer, chief executive at Boost Capital, also welcomed the Budget proposal: “The Treasury’s move to develop a route for those businesses to find alternative lending is very encouraging, especially for those who struggle to meet the stringent lending standards set by high street banks.”

The announcement follows the recent launch of an alternative finance clearinghouse portal by seven of the UK's biggest alternative funders - CrowdCube, Funding Circle, Market Invoice, Platform Black, Seedrs, Zopa and Pensionledfunding.com.

Today’s Budget also included the announcement of a new survey into the state of the business banking sector, which will examine the way banks perform for small businesses, with the first results published in May.

Source: Accounting Web

Our comments:

On the surface this is a really good thing for businesses looking to raise finance, and if the government can get it right and implement in practice what they want in theory then it will be welcomed by all growing businesses.

The main positive effects could be:

  1. It could make the banks more helpful in trying to provide their own funding if they know they have to pass custom on to someone else if they fail.
  2. It would keep the momentum going if the bank says no, at least there is still somewhere else to go and possibly still receive funding rather than feeling as thought you have hit a dead end as many businesses do currently.

But there could be downsides:

  1. The bank could look to make connections with finance houses that best suit them and thus push customers to their chosen provider rather than the one most suitable for the client.
  2. Unless there is some form of penalty for not following the process, or a reward for following it...then will the banks actually work hard to help a customer who they have no interest in and who is not contributing to their success?
  3. Will there be a charge for the service or will they simply hand you the contact details of an alternative funder with your loan rejection letter? If so that is not really very helpful.

It is all going to come down to the implementation and follow up, the government has mixed results in this area so watch this space.

 


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Alternative Lenders get Budget Lift

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