The Treasury’s bank transfer scheme, which aims to increase access to finance for small businesses, has come under heavy scrutiny after a recent review revealed it secured loans for only one in twenty businesses listed.
Under this program, nine major banks are required to refer small businesses they reject for loans to private platforms that connect them with other sources of financing.
Launched in November 2016, the program has facilitated 5,387 deals worth around £128 million—an average of £24,000 per loan. However, with total lending to SMEs at £4 billion in the latest quarter, these figures represent only a small contribution to the sector. The Ministry of Finance admitted that it had expected a “higher conversion rate” and admitted that the number of businesses receiving funding was “less than expected.”
FundOnion chief executive James Robson criticized the move, saying it had taken “a decade” for the government to acknowledge the limited impact of the scheme, which he described as “shockingly low” given the estimated £22 billion funding gap facing SMEs. Robson argued that budgeting around £1 million a month is “not even a drop in the ocean” when considering the financial needs of small businesses.
Despite the negative results, the Ministry of Finance defended the program, saying it had “generally met its objectives” by raising awareness of financial options and improving access to micro-lenders. However, Katrin Herrling, CEO of Funding Xchange—one of the program’s referral platforms—revealed that 94 percent of referral businesses do not have the profile to qualify for funding, often due to factors such as limited trading history or bad credit.
Herrling also noted the lack of response mechanisms in the system, leaving many small businesses unclear as to why banks are rejecting their loan applications. Ian Cass, executive director of the Forum of Private Business, echoed these sentiments, saying the scheme’s failure was partly due to a lack of engagement with traditional banks that have small business clients.
First announced by George Osborne in 2013, the launch of the scheme has faced delays due to structural disagreements. Under the current setup, businesses that agree to participate receive offers from other lenders, including Internet providers and private finance houses. However, the Ministry of Finance has acknowledged “inconsistencies” that affect the efficiency of the program, such as the requirement for physical signatures, data quality issues, and incomplete referrals to some lenders.