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You are here: Home Members Mark Halstead New legislation For UK SME Bank Declines Takes Larger Step Forward

New legislation For UK SME Bank Declines Takes Larger Step Forward

13 February 2015
by redflagalert -- last modified 25 February 2015

In the 2014 Budget, the Government announced plans to match small and medium sized enterprises (SMEs) that have been rejected for finance by the major banks to alternative finance providers. The plans now form part of new legislation in the Small Business & Enterprise Bill that is currently going through parliament with cross-party support.


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Fast forward one year, the pace of the Bill has picked up dramatically this week with the launch of an innovative 'online clearing house' for rejected SMEs by the financial technology firm, Funding Options. The platform uses algorithms to match individual businesses with alternative lenders, including some filtering to help business owners understand who is most likely to lend, and the relative costs and timescales for each lender.

These developments are good news for businesses in Britain. Here’s 4 reasons why:

1. These steps will help to close the information gap around financial products & providers

Currently, statistics by gov.uk show 80% of SME business accounts are handled by the 4 largest high street banks in the UK. This dominance has in part contributed to an information gap whereby SMEs have not been aware of their alternative options; all the while, alternative lenders have been unable to cost effectively reach SMEs.

Equally as important, historically the major banks have not had the regulatory comfort or processes to be able to make large-scale referrals to alternative providers.

The new legislation will help to bridge this gap and will provide a regulatory framework that is welcomed by all parties.

2. The market for alternative finance lenders has grown rapidly

There has been an upsurge in new & innovative alternative finance providers in the last few years. These new lenders have joined other, more specialist & niche, finance providers in working to support businesses who do not quite fit bank lending criteria.

This is a response to SME lending market forces and also to the actions of the government. For example, the British Business Bank has been instrumental in helping to promote the alternative finance sector by investing over £70,000,000 to support various providers.

The new matchmaking platform launched this week by Funding Options will further help to expose the sheer variety of alternative finance providers and challenger banks available to SMEs.

3. Businesses will now be given greater choice when sourcing funding, leading to more competitive costs

The matchmaking platform is designed to enable easy and quick filtering of the large variety of alternative finance providers in the market. More importantly, SMEs will be able to narrow down the market to their preferred lenders according to their own requirements, giving them greater control.

The better quality matching that will result from this sophisticated filtering is anticipated to lower the cost of acquisition for alternative lenders, and in turn help drive down the cost of finance for SMEs. This can only be good news for UK businesses.

4. Better business data will help to make better business lending decisions

The legislation forms part of a larger Bill that will enable greater data sharing, meaning that alternative finance providers will have the same information as banks when it comes to credit underwriting. This data will allow the challenger banks and other finance providers to make more accurate decisions when lending therefore allowing for a more healthy lending environment.

In summary, the latest development for the SME lending market indicates the changing of the tide is fast approaching. UK businesses should be optimistic about the future.

Funding Options is one of the UK's leading commercial finance intermediaries. The award winning service scans the market to find the finance options that best suit the needs of small and medium sized businesses. It has quickly become the one-stop shop for non-bank and alternative finance in the UK with a team of finance professionals that have experience in delivering solutions across the spectrum of business finance including Asset, Mortgage and Invoice Finance.

Funding Options

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