UK Banks Will No Longer Be Allowed to Decline Small Businesses For Loans as Alt Lending Wins

UK Banks better have a strong reason to turn down loan applicants, and if not, turn them over to another lender.

In an attempt to break the might of the big banks and back the thriving alternative finance industry, the UK Treasury will make it obligatory for banks to refer rejected small businesses to other lenders. Nine of the country’s largest banks including Royal Bank of Scotland, Lloyds, Barclays and HSBC will be legally obligated to do so when the plan goes into effect in the next three months, The Times reported.

The applicants will be referred to three loan marketplaces — Funding Options, Funding Xchange and Bizfitech that will make referral fees for loans funded on their platforms.

Online lending across the pond operates differently. The UK online alternative finance sector grew 84 percent in 2015, with support from the government and was one of the first countries to establish a regulatory framework where The Financial Conduct Authority (FCA) defines and categorizes crowdfunding, P2P lending and online lending. The UK is home to many early starters in the industry like Zopa and RateSetter.