The Centre for Finance, Innovation and Technology (CFIT) and its industry partners today set out how they plan to tackle the United Kingdom’s small and medium-sized enterprise (SME) credit gap, as part of a new Coalition developing technology-driven solutions to help those small businesses who are hesitant in applying for finance.
SMEs make up 99.8% of all UK businesses , yet their growth is hindered by a financial system that doesn’t meet their needs, discouraging them from seeking the additional capital they require to invest and scale.
This sector-wide initiative with blue-chip industry players, including Mastercard, Lloyds Banking Group and HSBC, will explore how commercial credit data is shared and utilised. The Coalition will focus on the UK’s five million businesses with 3-50 employees, particularly those in economically challenged regions, where demand for external finance to support growth is greater than elsewhere in the country. By using alternative data sources, we can develop and build smarter lending models that provide both SMEs and lenders better insights into their financial health.
A recent study by British Business Bank revealed that 60% of SMEs who don’t seek finance are unaware of the options available to them , while research from Small Business Economics demonstrates that 72% say that a past rejection has deterred them from applying for finance again. This lack of knowledge and scepticism about their ability to secure credit is a key factor in the weakening demand for finance - a trend reflected in the 20% real-terms decline in SME lending over the last decade. This limits job creation, tax revenue and the country’s overall economic prosperity. The UK Government’s own analysis has shown that 70% of SMEs would rather grow slowly than take on added debt.
To address these issues, the Coalition will use real-world insights to show how alternative indicators, enabled by technologies like Open Finance, could improve lending decisions and build confidence among small businesses.
Loan application data, including credit information, will be overlayed with alternative transactional data, such as cash flow, income, payment history, spending patterns and business performance over time. This additional data will be used to assess whether rejected applications could have been approved under different circumstances. The alternative data indicators, which may have otherwise been overlooked by traditional lending models, are expected to provide a more holistic understanding of an SME’s creditworthiness, going beyond the standard metrics of credit scores and balance sheets.
The Coalition will also undertake regional analysis, identifying the regions where there are opportunities to improve access to credit.
The Coalition will then create a user-friendly dashboard that consolidates all the key data points, giving SMEs a holistic view of the factors that influence a lender’s credit decisions, to help them better understand their finances and improve their future chances of accessing credit.
Drawing on the findings from its work, the Coalition will make constructive policy recommendations to support the UK Government’s stated goal of improving SME access to finance and complement the Treasury’s consultation on commercial credit data sharing.
Commenting on the Coalition, CFIT’s Director of Coalitions and Research, Leon Ifayemi, said:
"CFIT’s inaugural Coalition demonstrated how data sharing can help banks to make more lending decisions, faster. Now, alongside our industry partners, we’re shifting our focus from the supply side of SME lending to look at how we can boost demand for finance by helping small businesses to better understand their creditworthiness, overcome a fear of finance and apply for the funding they need with confidence. We’re grateful for the support of HSBC, Lloyds and Mastercard, whose data and expertise are instrumental in driving this initiative forward."
Angelene Woodland, Chief Customer Officer, British Business Bank, said:
“We are dedicated to ensuring smaller businesses can access the right information and type of finance they need to start, thrive and grow, and we believe that access to finance should be clear, simple and accessible. We’re pleased to be working with CFIT and industry partners to turn traditional and alternative data into user-friendly tools that will give smaller businesses the confidence to apply for funding. Through collaborations like these, we’re driving growth not just for the smaller businesses we support, but for the UK economy as a whole.”
Polly Dhaliwal, Chief Operating Officer of Enterprise Nation, said:
“Economic growth depends on empowering small businesses, so we’re in favour of anything that removes barriers to their success. This Coalition is looking to create real-world products that will address some of the challenges holding these businesses back. We’re looking forward to working with CFIT and others to build a fairer and more accessible financial system for SMEs.”
Tom Wood, Head of SME Business Banking at HSBC UK, said:
“SMEs are a critical part of our commercial landscape, however, HSBC UK research has found that 1 in 4 SMEs lack essential resources for growth. To ensure long-term growth and economic stability, we need to make financing more transparent and accessible for SMEs, particularly those in underserved areas. Alongside our small business growth programme, HSBC UK is excited to be part of this Coalition to help SMEs improve their credit readiness and increase access to fairer financing options.”
Elyn Corfield, CEO, Business & Commercial Banking, Lloyds Banking Group, said:
“We know the critical role SMEs play in driving economic growth. Innovation in Open Banking data has unlocked better short-term borrowing options but we want to lend more to more businesses. This is a real opportunity to get more financing into the hands of SMEs by improving their understanding of their own financial data, eligibility for credit and why a loan has been declined so they can reapply in the future.”
Mark Barnett, global head of small and medium enterprises, Mastercard, said:
“Small businesses are the backbone of local economies and communities, yet many still face barriers to accessing the capital they need to operate and grow. Tackling this credit gap requires unleashing smart, data-driven solutions like Open Finance that expand pathways to lending decisioning and unlock creditworthiness. By partnering with CFIT and industry leaders, we’re proud to accelerate the development of insight-driven lending models that provide greater visibility into SMEs’ financial health and drive confidence to invest in their futures.”