U.K. authorities have taken significant steps to increase small businesses’ access to working capital. As SMEs in the nation struggle to manage cash flow – in part due to major corporations paying their smaller suppliers later – Parliament has taken to promoting alternative lending for SMEs.
Part of that promotion includes proposed regulations requiring major banks to refer small businesses that have been rejected for a loan to alternative lenders, a scheme aimed at increasing awareness of alternative methods to find working capital.
But while small businesses remain skeptical of Parliament’s ability to tackle late payments and improve SMEs’ cash flow, alternative lenders are now raising their own doubts about government efforts.
According to reports, alternative financers are voicing frustration over the length of time it will take for the bank referral scheme to take effect, as well as the way in which the rules will come into play.
The doubts were raised at a recent roundtable discussion hosted by Boost Capital, unnamed sources told reporters. Members of the discussion are pushing for regulators to require banks to refer SMEs to alternative lenders sooner in the application process.
The lenders’ concern, reports said, is that banks are pushing for that referral to take place only after a long, taxing application process. Doing so, alternative financers said, would exclude hundreds of thousands of SMEs from accessing working capital, especially startups that need that money quickly to stay alive in the market.
“Much of our industry feels frustrated at the time the bank referral scheme is taking to materialize,” said Boost Capital Director of Business Development Norman Carson. “The key issue is the way in which the system may be administered by banks themselves. If SMEs do not get referred until after a long decision process, I fear it will destroy the referral program before it gets started.”
Further, that lengthy application process with a major bank could lead to extra, unnecessary costs for the small businesses in the form of business plans and other materials necessary for the application process.
According to reports, first-time small business loan applicants are rejected by major banks 50 percent of the time. Less than 2 percent of those rejected appeal the decision; only 1.3 percent of those that do appeal are successful.
That long application process, plus the appeal process, wastes valuable time for small business that could instead be using resources to apply with an alternative lender, members of the roundtable said.
U.K. policymakers recently revealed that the bank referral scheme will come into effect in 2016.