SME Access to Finance: The role of funders

In recent weeks, we have written extensively about what businesses can do to get “match fit” to apply for business finance. There are a number of steps business owners can take to help them have the best possible chance of securing funding, and this is especially the case for small and medium sized enterprises (SMEs)

But what role do funders play in helping businesses to build a fundable profile?

Historically, entrepreneurs and business owners would approach their bank manager at their local branch for an appropriate loan or finance product. Bank staff would traditionally therefore play a big role in educating businesses and helping them get ready for funding.

The support network and the credit market have radically moved on, with business owners able to access far more diverse types of funding than simple overdrafts or loans, and numerous sources of advice available. The local bank manager, if they exist at all, is no longer the first port of call or even the best source of advice for most business.

The businesses that need the most support are those that do not yet have a fundable profile, but with the right help could access the finance they need.  For those SMEs that struggle to get finance, Mandatory Bank Referrals (MBRs) were introduced in 2016. MBRs require banks to refer declined loan applications to alternative finance providers.

But 9 in 10 businesses using MBR are unable to secure funding through the referral process as they don’t have a fundable profile. MBRs though can be made to work more intelligently. Funders and businesses have access to data and analysis tools that ensure that much more tailored advice can be provided within the framework of MBRs. This means funders can play a much more active role in supporting the businesses that need help to get “match fit” the most.

A whole host of insights can then be provided to the business, using credit reference agency data and making use of the funding opportunities, particularly with respect to asset finance, across the market. To unlock these changes tweaks are needed to the MBR scheme. We want the Government to work with funders to identify how these small changes can best be deployed.

We have produced a short briefing document on access to finance which sets out our vision for improving MBRs. With small changes and an innovation-forward approach, funders can deliver the best possible support for their customers.

Published 28 Jul 2023

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