UK scheme to promote alternative lenders to be running by 2016

* Banks to refer rejected SMEs to online platforms

* Business Bank looks for partners for referrals programme

By Matt Scuffham

LONDON, March 24 (Reuters) - A British government schemerequiring banks to refer small firms rejected for loans toalternative finance providers should be up and running by nextyear, the managing director of the British Business Bank said.

The scheme is part of government plans to encourage lendingto small businesses and fill a hole left by Britain's biggestbanks scaling back lending to bolster capital and meet tougherregulatory rules following the financial crisis of 2007-9.

The Business Bank, which supports lending tosmall-and-medium-sized firms, said on Tuesday it was invitingpotential partners to apply to run online platforms that willput referred businesses in front of alternative financeproviders.

"We will definitely want to have something in place by 2016. The banks need to implement it and we need to get the systemsright. It's better that the system is implemented well than werush it," Andrew Van Der Lehm, managing director of the BritishBusiness Bank, told Reuters.

Britain's finance ministry said last year that it wouldrequire 10 banks including Royal Bank of Scotland,Barclays, Lloyds Banking Group and HSBC to offer businesses whose loan applications they haverejected a referral to alternative finance providers.

Those four banks currently provide around nine out of every10 business loans but are seeing increasing competition frompeer-to-peer lending platforms such as Funding Circle andMarketInvoice. The alternative finance market is forecast tomore than double this year.

RBS and Santander have already started steeringrejected applicants for business loans to Funding Circle. (Editing by Susan Thomas)