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Bank Referral Scheme Launched

02/11/2016

At a glance

The Government has launched a new scheme in an attempt to connect small and medium sized enterprises (SMEs) with alternative finance platforms – the Bank Referral Scheme. The Scheme obliges banks to ask SMEs who they have refused credit to if they can pass their details on to an alternative finance platform.

 

The aim is to go some way to plugging the gap in funding currently available to SMEs who are refused credit by the major banks.

Alternative finance provides a very different funding experience for SMEs with less focus on traditional credit approval techniques and more focus on potential upside return and lender engagement with the product.

As we have warned in the past, the lack of due diligence, valuations, and risk factors available to funders via alternative finance platforms are now very much at the forefront of the FCA’s watch-list.

Similarly, there is concern that SMEs will not being going into the brave new world of alternative finance with their eyes wide open or with enough knowledge of the sector or competing offers of finance to enable them to make an informed choice.

The Scheme will no doubt prove successful for a number of funders and SMEs but for others care should be taken in this area particularly in light of the information barriers mentioned above.

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