The new legislation proposed by UK Chancellor George Osborne could make it mandatory for banks to help small and medium enterprises (SMEs) by directing their rejected loan applications to alternative lenders’ crowdfunding and P2P platforms.
The proposals, which were unveiled in the budget statement on 19 March, have been cheered by the alternative lending industry.
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The idea was first floated by coalition politician Vince Cable during a speech at London Stock Exchange in February 2014.
Back then, Cable said he was exploring an independent referrals exchange process so that small companies turned down for funding by a bank would be automatically referred to other providers.
"If a bank turns down a business for a loan, in 40% of cases that business gives up," Cable added.
Recently, UK’s seven major alternative funders recently launched a site, alternativebusinessfunding.co.uk, to direct SMEs to most appropriate source of non-bank funding.
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By GlobalDataThe seven funders are CrowdCube, Funding Circle, Market Invoice, Platform Black, Seedrs, Zopa and Pensionledfunding.com, which account for 85% of the alternative non-bank funding industry and have so far provided over £580m to SMEs.
pensionledfunding.com chairman, Adam Tavener, said this is a real opportunity for a collaborative culture to develop between the banking and alternative sectors, not just to refer businesses but to work together on multi source deals that provide exactly the right shape of funding package for the business owner.
"Better signposting, would give businesses – particularly SMEs – safe access to approved lenders, while helping banks keep UK businesses growing by encouraging innovative or complimentary funding," Tavener added.
