New “duty to refer” SMEs hoped to improve access to finance

Rejections from banks have traditionally meant significant blocks to funding and growth for small business owners, but SMEs are now being offered alternatives that could make the journey towards funding easier.

This is all down to a new power whereby the Treasury can impose a “duty to refer”, which will hopefully help SMEs who face rejection from banks to find alternative sources of finance.

The new referral duty is not forecast to take hold across all funding platforms, but certain designated banks and finance providers are legally bound to take on the duty, under The Small Business, Enterprise and Employment Act 2015.

Coming into force in March of last year, the “duty to refer SMEs” onto banks, arises if certain qualifications are met.

These are:

  • The value of the facility applied for must be at least £1,000
  • The term of the facility must exceed 30 days, and
  • The bank must have no evidence that the business is either subject to any formal demand, statutory demand for payment, enforcement proceedings or any other legislation in relation to payment obligations under an existing finance facility.

The Treasury will decide which specific banks will be subject to the new referral duty at a later date. The Treasury is also expected to issue improvements in information sharing, to help enable a more efficient process for funding decisions.

From 1 January 2016, designated banks are free to share information on their SME customers with designated credit reference agencies. These agencies must then offer finance providers immediate access to the data of the SMEs in question, hopefully improving the efficiency of the decision making process all round, by allowing faster access to the information required for the decision making.

In time, these shifts in referral duties and information sharing should enable a more efficient and flexible route to SME funding for thousands of businesses in 2016 and beyond.

Carter Lemon Camerons LLP Solicitors is a City law firm which specialises in providing legal services to SMEs and their owners. Unlike many City practices we are happy to act in smaller private legal matters, bringing the same care and consideration as we do to large commercial matters.  For more information about our employment services, please contact Andrew Firman or telephone: 020 7406 1000.