Rejected SMEs to be referred to alternative lenders

Proposals to require the high-street banks to refer rejected business loan applicants to alternative lenders have been around for a while now, but with the conclusion of a recent HM Treasury consultation on the subject, the picture of how the process might work is becoming clearer. In their announcement of the publication of the consultation’sRead More

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Proposals to require the high-street banks to refer rejected business loan applicants to alternative lenders have been around for a while now, but with the conclusion of a recent HM Treasury consultation on the subject, the picture of how the process might work is becoming clearer.


In their announcement of the publication of the consultation’s responses, HM Treasury say: “The legislation will require the largest UK SME lenders to forward on details of SMEs they reject for finance (where SMEs give their consent) to platforms that will help them be linked up with alternative lending opportunities.

“Private sector platforms will be designated to receive this information by the government on the basis of their meeting clear minimum standards that focus on ensuring that SMEs are in control and properly protected throughout the process.”

What does this mean in practice? Well it seems as though SMEs will not simply be handed a brochure or shortlist of potential alternative lenders, as many people might have expected would be the case.

Instead, with the SME’s permission, the SME’s own details will be added to a database of would-be borrowers, and from there will then be forwarded on to any alternative lenders deemed suitable for their needs.

The implication is that SMEs must relinquish control of the process and simply wait to be approached by an interested lender, rather than being able to approach suitable alternative lenders that are recommended to them

While this is still better than having no alternative source of funds at all, it will be interesting to see how well the system serves small businesses, if it goes ahead as described – or whether it simply turns rejected business borrowers into a meat market for alternative lenders to choose from.

 

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