Bank Referral Scheme under the microscope

The Treasury is consulting on potential enhancements to the Bank Referral Scheme (BRS), which is intended to improve access to finance for SMEs and drive competition in the SME lending market, but which has been widely criticised for poor outcomes.

Launched in November 2016, the scheme requires nine of the UK’s biggest banks to pass on the details of small businesses they have turned down for finance to three government designated finance platforms: Alternative Business Funding, Funding Options and Funding Xchange.

These platforms are, in turn, required to share their details, in anonymous form, with alternative finance providers, helping to facilitate a conversation between the business and any provider who expresses an interest in supplying finance to them.

Up to Q3 2024, over the lifetime of the scheme, a total of 5,387 deals worth over £128 million were approved between alternative credit providers and SMEs through the BRS, with an average deal size of around £24,000.

While the Treasury claimed the scheme had “generally met its objectives”, it conceded the government had “anticipated a higher conversion rate” and that the proportion of businesses benefiting “in terms of acquiring finance has been smaller than expected”.

Analysis showed that just 5% of businesses rejected by lenders and referred to the BRS ended up securing finance.

94% of companies referred “do not have a profile that allows them to successfully access funding as they are too young or have blemished credit records, have not managed their payment obligations, or fallen behind in filing annual accounts”.

Consultation

Following a post-implementation review in 2024, the Treasury is now consulting on a range of potential enhancements to the BRS designed to improve take-up and increase the funding available for SMEs.

Among the options under consideration are changes to the regulations around the size of SME businesses and types of finance products in scope of the BRS, as well as adding to the range of designated lenders.

In its commentary, the Treasury points out that challenger and specialist banks had a record 60% market share of gross new SME bank lending in 2024 compared to an estimated c.30% of gross new lending when the BRS was originally set up.

The consultation states: “we think it likely that a wider range of firms (potentially including major non-banks) that are significant providers of SME finance might be considered for designation. We would welcome evidence of the likely cost of designation from respondents.”

The consultation also seeks to establish whether more could be done to tackle the issue of “double rejection”, in cases where SMEs fail to obtain finance either from one of the designated banks or via one of the funding platforms. This could mean providing rejected SMEs with reasons as to why their application has been rejected and whether they could take any immediate steps to improve their credit file or the information previously provided before being connected with another finance provider.

The consultation is open for comment until 22 December.