The government has launched credit data sharing scheme designed to make it easier for challenger banks and alternative finance providers to offer loans to small businesses.
It is requiring nine banks and three credit reference agencies to share, with the SME’s permission, the credit information they hold on SMEs equally with all finance providers, suggesting this will increase competition in the lending market and help more businesses find the funding they need to grow.
A number of bodies, including the Office of Fair Trading and the Competition Commission, have all highlighted how a lack of information about the creditworthiness of SMEs has been a major barrier to competition in the SME lending market.
The biggest banks currently have access to much more data than challengers, so the new regulations will enable over 100 alternative finance providers to compete effectively.
Under the new regulations RBS, Lloyds, HSBC, Barclays, Santander, Clydesdale and Yorkshire Banks, Bank of Ireland Danske Bank and First Trust Bank (Northern Irish subsidiary of Allied Irish Bank) will all be required to share data on their SME customers with the designated agencies, Experian, Equifax and Creditsafe.
Harriett Baldwin, the economic secretary to the Treasury, said small businesses are the backbone of Britain’s economy, so it is right every possible source of finance is made available to them.
“The best way to deliver this is to increase competition in the banking sector and remove the barriers to new sources of finance for SMEs. Requiring banks to share data is a major structural reform that will level the playing field between banks and alternative finance providers.”
James Candow, financial adviser at Wales-based Continuum, called it a good idea.
“From chatting to other businesses, they have struggled to get finance and banks, the traditional lenders, are not keen to lend so they have to go to alternative options and anything that helps would be an advantage.”