SMEs want rules to force banks to refer rejected firms to alternative lenders


The findings come on the last day to make submissions to the Government’s open consultation process on whether legislative steps should be taken to bring about this change, and if so how.

Support for this change is partly explained by the fact that the research reveals that only a quarter of SMEs describe their knowledge and understanding of the alternative funding sector as ‘good’ or ‘excellent’, and only 5 per cent think it would be ‘very easy’ to find an alternative lender.

Analysis of industry data reveals that around £787 million of business loan applications alone were rejected during the third quarter of 2013. Of that around 22 per cent of applications from small businesses were rejected, and the corresponding figure for medium sized enterprises was around 9 per cent.

Max Chmyshuk, Founder and Managing Partner at Fleximize, who commissioned the research, said: “It’s ridiculous that so many SMEs have their applications for credit rejected by the big banks because many of them are financially viable, growing businesses that don’t pose a high risk of default. They are sometimes unable to persuade the big banks to lend to them because the banks use lending criteria designed for the last century and ignore some positives even when they see them, focusing instead on catching negatives.

With new technology, data and insight, alternative lenders can often be ‘smarter’ than the banks when assessing applications for business credit. For example, we use a relationship lending model augmented by significant amounts of data available from online platforms and marketplaces, payment systems, and other service providers that a regular bank would disregard. Empowered by the data, our relationship managers speak to many applicants in order to better understand their business and try to find reasons to lend rather than the reasons to reject.”

“The ultimate goal is to increase the amount of responsible lending to SMEs and this will be helped if new legislation forces banks to forward the details of SMEs they reject for finance to professional regulated alternative lenders.”