The Chairman of The Corporate Finance Network has today called upon the Government to abandon their Government Referral Scheme, calling it 'immoral'
The Government Referral Scheme was launched in 2016 after an announcement by the Chancellor in the Spring Budget of that year. It legally requires any of the main seven banks to make a referral to one of four designated platforms, if they turn a business down for funding.
Statistics from HM Treasury show that the first 20 months of the scheme, 19,000 businesses have been referred by the banks but only 900 have been successful. But rather than bemoan the apparent low success rate of this scheme, the Founder of The Corporate Finance Network, a group of accountants with specialisms in Corporate Finance for SMEs, is delighted! Kirsty McGregor explains why:
"I find this whole policy to be immoral and I am very pleased that it has impacted on so few SMEs. When businesses have been rejected for finance by their bank, they have probably spent 4-6 months in the funding process, and are therefore 4-6 months more desperate for the finance. If they are then given the opportunity to secure finance from another lender, probably at an extortionate cost, they will be very tempted to take it.
"There is a growing breed of online funders who are willing to lend to businesses at high rates of interest and fees, and I believe the Government is only encouraging our small businesses to take finance which they can ill-afford. This will only lead to problems further down the road, and with the continuing pressures on many small businesses from increasing costs due to the devaluation of the pound, implications of the Brexit process and the failure of many of the large companies on the high street and in construction, business owners don't need to be tempted to take more finance to fill a short-term need, instead most need support and advice to address their rising costs and to implement some necessary restructuring of their businesses.
"I only hope the Chancellor looks at the weak results from this scheme and reconsiders the cost vs benefit of it, both for HM Treasury and our economy as a whole, and instead considers policies which encourage businesses to seek advice from trusted and experienced advisors, rather than just directly approaching more 'racy' lenders"
Ms McGregor has also made a Freedom of Information Request to British Business Bank to enquire how much this scheme has cost to support these 900 businesses.To find the statistics referred to above visit https://www.gov.uk/government/statistics/bank-referral-scheme-august-2018 and for more information about The Corporate Finance Network, email info@TheCFN.org.uk or visit http://www.thecfn.org.uk/about-us.php