The head of a Bradford-based fund that backs small businesses rejected by the banks has welcomed plans by Chancellor George Osborne to make it easier for rejected firms to get alternative finance.

But Stephen Waud, director of the Business Enterprise Fund, said the gap between demand for lending and supply of funding was about £3 billion nationally and £400 million in Yorkshire, which showed that banks were still far from meeting the needs of small businesses.

The Chancellor outlined his plans in a speech to the Federation of Small Businesses annual conference last week. He said the Government would launch a consultation on whether it should legislate to force lenders to release information on SMEs they reject for finance, so that they can be identified and approached by alternative credit providers, such as BEF.

He said his proposals will bridge the gap between SMEs not knowing about the alternatives and lenders not knowing these businesses need a loan.

Mr Osborne said: “The success of small and medium-sized business is key to the Government’s long-term economic plan. That’s why we are fully focused on making sure businesses can get the finance they need to grow and create jobs.

“This includes actively supporting innovative new forms of business lending. We’re setting out new proposals that will help match up other lenders with small businesses that may have been turned down for a loan by a large bank. A big bank saying ‘no’ should not be the end of the line for a small business. Now, with our plan, it won’t be.”

Mr Waud said BEF, along with other community development finance associations, had been lobbying the Government for years to release data on businesses turned down by the banks.

He said: “This was part of a recommendation made by the parliamentary commission into banking standards which we contributed to. So the banks now will be forced to provide postcode information of those businesses rejected by the banks.

“BEF collaborated with the British Bankers Association to create a portal where all SME bank declines would be sent through to CDFIs/alternative lenders. This was launched over 18 months ago but time has shown that the banks are greatly reluctant to direct their declines to organisations like us.

“Despite there being thousands of declines a month by the banks, we have seen 15 in the last 18 months coming through the portal. Across the UK, 5,000 businesses are declined by bank lending committees every month.

“The Government has taken a softly softly approach to the banks, but perhaps they need to step up the pressure and allow organisations like us to pick up the slack.”