Blog article
See all stories »

Lenders need a new wisdom if they want to capitalise on growth

The banking sector simply isn't lending. And when they are, lending to the wrong businesses.

Access to finance continues to be a significant concern for small to medium sized enterprises (SMEs) compared with large enterprises. More SMEs experience issues with bank loan financing compared with corporates.

This is worrying considering for two reasons. First, SMEs account for over 60 per cent of the EU's GDP. Second, according to the European Banking Authority's recent study, large companies – with the least loan rejection rates – can be riskier to lend to.

As expected, the smallest firms have the highest risk of default during an economic downturn. But most interesting is that the "M" in SMEs – the medium-sized firms – are consistently the best performers during a downturn. In fact, they are far less risky players compared with large firms who have the lowest lending rejection rates.

I believe this is due to information friction. There is not enough information about private companies to price lending risk effectively. This has created a trust bubble between finance providers and large companies (often publicly listed) that already have a wealth of publicly available information.

The idea of private company data becoming public seems somewhat counterintuitive. After all, isn't the ability to conceal aspects of your business's inner workings the whole point of a private company?

But to be clear, in this context, private company refers to the concept of Limited Liability. It's a commercial venture that protects its shareholders from bankruptcy. Its arguably one of the greatest wealth creation inventions of all time. From the Ashford Cattle Market Company Ltd, which was incorporated in 1856, to Silicon Valley pioneers. Limited liability was never intended to mean anonymous, as it's come to have been interpreted. It is a concession - something given by society for the common good. It allows people to have bold visions and sometimes fail at achieving them but not die by them.

I am here to tell you that private company data won't be private for much longer. And that that's OK. In fact, it's a huge opportunity for creating prosperity in the UK and across Europe – with the banking and finance sector at the heart of funding its growth.

If lenders had richer information to properly understand each of their customers and their marketplace, this may encourage more lending. Consider a customer who is seeking financing to expand its operation after securing a significant contract with a major new German customer. The bank can use due diligence technology to not only better understand the risk and reward of their customer - but also that of their major new customer.

Businesses can equally use the technology to seek new trading partners and more efficiently market to new prospects beyond their borders.

In many ways, the UK has been a great test bed for democratising private company information in this way. Companies House was amongst the first to open its datasets up through its API, allowing financial technology companies such as ourselves to map company information with other data sources such as credit ratings, to create comprehensive company profiles.

The good news is that we're beginning to see other European countries including France, Germany, Benelux and the Nordic countries following suit. Together with the UK and Ireland, that's 40 million business profiles that are being opened-up, making it easier for businesses to engage in new cross-border trade deals and to access liquidity. We can expect to see more countries do the same in the coming year. It is a positive start, but what we need is more consistency and greater depth of information across different countries.

There are opportunities in any type of market, but the best opportunities can be found in a bearish market. However, for lenders and businesses to capitalise on the opportunities in front of them, they must do so confidently with their eyes wide open. 


Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 12 May, 2017, 18:54Be the first to give this comment the thumbs up 0 likes

I've used DueDil to gather info about private companies but as a marketer of B2B technology who has no other way to access such info. However, when someone applies for a bank loan, they need to submit their entire financials to the bank. Therefore, while financials of a private limited company may not available in the public domain, I'm not sure why banks should have any problem accessing that information - which is what I think you mean by "information friction" - while lending to such companies.

Damian Kimmelman

Damian Kimmelman



Member since

02 May 2017



Blog posts


This post is from a series of posts in the group:

Fintech innovation and startups

Disruption, destruction, harmony and creation; Fintech’s new frontier – a place to discuss the cutting edge of innovation.

See all