Out-Law News | 07 Aug 2014 | 2:45 pm | 1 min. read
The announcement is intended to benefit the growing alternative finance industry, including crowdfunding and peer to peer lending platforms, as well as small businesses, according to the government's response to an earlier consultation. It will be backed by a £100 million extension of the British Business Bank's state-backed investment programme, which allows businesses to access finance through alternative lending platforms.
"Forcing banks to refer businesses to alternative lenders is something I've been determined to make happen," said Vince Cable, the business secretary. "It's good that more SMEs are making use of alternative finance but the big banks still dominate and small businesses often give up if they're turned down for finance by their bank."
"The UK needs a diverse and competitive business finance market like Germany and the US if our SMEs are to thrive, and that is why the Business Bank is so important. Money is already reaching small businesses, but my ambition for the Business Bank is to radically alter the overall market landscape," he said.
Under the new rules, banks that reject SMEs for finance will be required to ask them whether they want their information to be passed on to designated online platforms that will be able to match them with alternative sources of finance. These platforms will include details of smaller 'challenger' banks and new lenders operating in the 'FinTech' space including crowdfunders, peer to peer lenders and invoice finance providers.
Legislation which will implement the new policy will be included in the Small Business, Enterprise and Employment Bill, which is currently before the UK parliament. Platforms which link up lenders and SMEs will need to meet clear minimum standards that "focus on ensuring that SMEs are in control and properly protected throughout the process" before banks will be able to pass information about potential customers onto them, according to the consultation response.
The state-backed British Business Bank is a programme which consolidates new and existing lending schemes offered by private investors and government capital. It is able to facilitate investments in the form of managed investments and direct capital investments, with the government providing no more than 50% of the total investment on the same terms as private sector finance. Businesses operating in the UK with an annual turnover below £100 million can apply for finance through the 'bank'.
As well as committing a further £100m to the programme, the government also plans to create a range of new awards and prizes which will be offered to lenders able to develop innovative finance solutions that will benefit small businesses in response to particular 'challenges'. Details of the challenges and prizes, which will be co-sponsored by the British Business Bank and Innovate Finance, have not yet been announced.