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A loan scheme set-up to offer more lending opportunities to small businesses has come off to a ‘dismal’ start after it was revealed that just 230 businesses had been helped with finance through the scheme which launched in November 2016, as reported by The Times.

A lending boost for start-ups

George Osborne, former chancellor of the Exchequer, established the scheme which gave out less than 4 million in finance during the nine-month period that it has been active.

Just 3% out of the 8100 businesses referred by Banks to alternative finance providers have used the scheme, which brings into question the viability of Osborne’s plan. On the other hand, it’s safe to say that it’s still early days which means that the best results may be around the corner.

Osborne’s plan requires 9 leading UK banks including, Royal Bank of Scotland (RBS), Lloyds, Barclays and HSBC to refer companies rejected for loans to “one of three online finance portals that refer alternative lenders to peer-to-peer platforms and independent asset finance providers.”

These above four heavyweight Banks account for 80% of loans issued to small businesses.

Stephen Barclay, economic secretary to the Treasury, told The Times: “Over 200 businesses from beauticians to forklift truck training firms have received the money they need to grow and we expect this number to increase.”

The struggle to secure finance

Small businesses can often be turned down for loans due to a number of factors:

No proven track record

If your business is new – you’ll have no financial history which will make it harder for the Bank to approve your application.

Cash flow

As a start-up, you’ll be required to allocate funds towards building your business from scratch. This includes purchasing resources, equipment, and software which can prove quite costly for the first year of your accounting period, meaning that cash flow will most likely be low.

Low credit score

If you have a low personal credit score, this will hinder your chances of getting a business loan as it shows the lender that you may be too high risk. This will give the lender an indication of how much profit is made, your current business debt and the state of your financial health.

The British Business Bank estimated that around 100,000 small to medium business loans are rejected each year, showing an increasing need for a scheme such as the one introduced by Osborne.

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