As part of the new Small Business, Enterprise and Employment Act brought in recently, SMEs in the UK will have more options when applying for finance.

Having a loan application rejected can be like an axe grinder for smaller businesses looking for ways to expand or even just stay afloat through hard times. But the latest changes mean that being turned down for a bank loan isn’t necessarily the end of the road.

Now, when UK banks reject business loan applications for a small company, they will be required under this new law to refer the application to alternative finance providers.

To organise this set-up, the British Business Bank (BBB) has been established. This state-owned bank has been encouraging finance companies to apply to become a part of this referral programme designed to help small businesses receive the financial boost they need.

Top banks such as RBS, Barclays, Lloyds and HSBC will now be obliged to follow this system by referring failed loan applications from small businesses onto an online platform of alternative options.

Keith Morgan, chief executive of the BBB said: “Smaller businesses will have a greater choice of provider and chance of securing finance, alternative providers will have access to a bigger market of potential clients, and the major banks will be able to offer an additional service to those they initially turn down.”

SMEs don’t shop around for finance, according to research

A study conducted by the BBB found that two thirds of SMEs only approach one provider when seeking finance, while 38% of small businesses decide to give up hope completely following the first rejection.

With these findings in mind, it’s hoped that referring businesses on to alternative finance options will speed up the process and give SMEs a better chance of securing the funding they need to grow and prosper.