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May 02, 2014 - Rachel Miller

Should banks refer SMEs to alternative lenders?

Should banks refer SMEs to alternative lenders?The government is considering whether legislative steps should be taken to force banks to refer small firms that are rejected for funding to alternative lenders.

Research by Fleximize shows that 65% of SMEs believe banks should be forced to provide details of SMEs that they have rejected for funding to alternative lenders. Only 7% of SMEs were against banks being forced to do this and 28% were unsure.

The research also reveals that just 25% of SMEs describe their knowledge and understanding of the alternative funding sector as "good" or "excellent". Only 5% think it would be "very easy" to find an alternative lender.

According to analysis of industry data by Fleximize, around £787 million of business loan applications were rejected during the third quarter of 2013. It found that 22% of applications from small businesses were rejected.

Max Chmyshuk, founder and managing partner at Fleximize 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."

He added: "With new technology, data and insight, alternative lenders can often be 'smarter' than the banks when assessing applications for business credit. 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."

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