Commercial credit data sharing scheme – transforming SME lending

SME's can now get a loan faster and potentially at more competitive rates.

Nic Beishon, head of commercial at Equifax discusses how SME’s can get access to more competitive loans as new data and lending is combined in a new government scheme.

Raising funds, accessing loans to grow and scale up, and finding efficient working capital finance are some of the most serious challenges facing the UK’s SMEs. In 2013 a government consultation paper entitled “Competition in banking: improving access to SME credit data” showed that the four largest banks held an 85 per cent share of the SME lending market, a high concentration which didn’t support the best interests of consumers and business.

The number of UK private sector businesses has been growing steadily, up from 3.5 million in the year 2000 to 5.5 million, yet many businesses struggle to access the funds they need. Only 41 per cent of SMEs seeking finance in Q4 2017 were confident that a bank would agree to lend to them.

How will CCDS help?

The Commercial Credit Data Sharing (CCDS) scheme, a government initiative mandated under the Small Business Enterprise & Employment Act 2015, was introduced to drive competition and encourage new entrants in SME lending to address the financing gap within the sector. It covers not just the smallest UK businesses, but any company with a turnover of up to £25 million – 99.9 per cent of the entire UK business population.

The scheme, which is now live, opens up secure sharing of detailed business current account data and up-to-date information on the performance of existing loans and corporate cards from the leading business banks. Credit Referencing Agencies, designated under CCDS, manage, cleanse and match the data against their existing records. Lenders can use this completely new package of information to build a picture of a UK business, using this to review a business’ financial performance and make robust lending decisions more quickly.

Access to Finance through improved data sharing

CCDS is a game changer for many businesses who have the financial ability to repay a loan but who would historically either have been denied it, or left in limbo when limited information meant banks were unable to make a timely decision.

The newly available data overcomes this issue by providing a more comprehensive view of a business’ financial activity and health that has ever been accessible before, in particular benefitting SMEs who only occasionally apply for finance. The amalgamation of current account information and the broad range of data facilitates a better assessment of the liquidity, financial commitment, behaviours and ability of the business to repay the debt, helping them make informed decisions on whether they should offer a loan, and the appropriate pricing of that risk. The in-depth picture of a borrower’s financial activity will also enable banks and non-bank lenders to offer SMEs more competitive loans.

SMEs in financial distress

For some lending businesses, once the credit decision is taken and a loan is paid out, the only contact between lender and borrower is the process of regular repayments – no further monitoring of the customer’s financial status is deemed necessary or takes place. If the customer defaults, it then can be difficult to determine the underlying reasons.

Access to CCDS data gives lenders the ability to track a customer’s financial status in terms of liquidity, affordability and signs of stress, alerting them to potential problems with repayments and helping to identify the best course of action early on. This supports the new lending standards introduced last year, aimed at protecting those borrowing money and delivering fair customer outcomes. A 360-degree view of their customer allows lenders to better support SMEs in times of financial stress and safeguard them against over-indebtedness.

A revolution

This data sharing scheme has the potential to revolutionise how lenders evaluate loans, allowing them to make faster, more informed lending decisions. Whether a business needs finance to expand, invest in new technology or open a new office, they can now get faster decisions to help make their plans a reality. While it may take time for the benefits of the scheme to be fully realised, the outlook for SME lending is looking positive.

CCDS goes hand in hand with Open Banking, another industry initiative implemented earlier this year, which means businesses can use their financial transaction data to access products more easily and better understand their finances. Both Open Banking and CCDS involve banks securely sharing more data than ever before to provide better access to finance solutions. Combined with Open Banking, CCDS will transform SME lending, facilitating growth in the sector and helping the UK economy flourish.

Further reading on financing

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Michael Somerville

Michael Somerville

Michael was senior reporter for from 2018 to 2019.