Banks will be forced to refer businesses to alternative sources of funding if they are rejected for loans under plans unveiled by the chancellor George Osborne.

The rules, likely to come into effect in the autumn, mean banks will be obligated to point failed applicants to alternative funding sources such as asset finance providers, crowdfunding organisations and peer-to-peer lending platforms.

It could provide a financial lifeline for bosses who need funding but are unaware of the breadth of options for growing UK businesses, particularly start-ups and SMEs.

A consultation was launched in April to find out how such a referral process could work in practice.

Commenting on the new policy, business secretary Vince Cable said: “Forcing banks to refer businesses to alternative lenders is something I’ve been determined to make happen.

“It’s good that more SMEs are making use of alternative finance but the big banks still dominate and small businesses often give up if they’re turned down for finance by their bank.”

The alternative funding sector gave a warm response to the news.

Tracy Ewen, managing director of IGF Invoice Finance, said: “Forcing banks to promote alternative lenders when they can’t provide funding themselves is a logical step to help keep the recovery on track. It will also go a long way towards publicising the wide range of options that are available to firms.”

Stuart Law, CEO of Assetz Capital, which has lent £40 million to UK SMEs, said it was good news in principle, but sluggish bank approvals processes would continue to cause unnecessary delays.

"What is needed is greater awareness of alternative sources of finance at the application stage, so that businesses can make an informed decision before they invest significant time and effort into bank loan applications.”