The MBR was introduced in 2016 and requires banks to refer declined loan applications from SMEs to other finance providers – a logical and laudable policy measure in a funding market with new entrants and different risk appetites.

However, 9 out of 10 businesses that currently use the referral system are unable to secure funding. This may stem from the fact that the MBR simply cascades applications which, having failed once, are likely to do so again because either the application itself is flawed or the business does not have a fundable profile.  

Simon Goldie, director of business finance at the FLA:

“Mandatory Bank Referral is a blunt tool but what we actually need is a smarter system that can distinguish between those firms that are not ready for finance, and those that potentially are but have more work to do to improve their credit profile and understanding of funders’ expectations.  

“We would like to see the MBR system reviewed so that it could be used by lenders to channel some firms out of the process and signpost them to sources of advice that will ultimately help their prospects of securing finance.”

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