The Federation of Small Businesses (FSB) and a group of top fintech firms, including Oaknorth and Atom Bank, have called on Grant Shapps to improve small businesses’ access to borrowing, warning that failure to do so could further damage the UK’s economic growth prospects.
The business lobby and a number of fintech lenders have warned that smaller firms are often shut out of traditional borrowing routes due to complex and fragmented data requirements.
In an letter seen by City A.M., the fintech firms, which also include Funding Circle, Codat and Iwoca, have written to the business secretary to ramp up “data sharing initiatives” and lean on the UK’s open banking regime to help ease the process of borrowing for smaller firms.
“There are often too many barriers in place to lenders accessing up to date, accurate data on businesses to make informed decisions, and the application process for SMEs can be too complex and time-consuming,” the firms wrote.
“To tackle the harmful gap between the critical funding SMEs need and the funding they receive, we are calling for the UK to build on the success of Open Banking and support the country’s small businesses through improved data sharing initiatives,” the letter added.
The letter said “more needs to be done” urgently to close the £22bn funding gap for smaller businesses, according to Bank of England estimates.
The fintechs called on Shapps to help establish an “SME funding passport” containing all standardised financial data needed for underwriting loans to firms to help business borrow with ease .
Commenting on the letter, Martin McTague, national chair of the FSB, supported the fintechs firms’ calls and said improving small firms’ access to finance was “essential for growth, investment and innovation.”
“We’re going to need to explore new ideas to change this around, such as the lending passport, which has the potential to help small firms in their search for funding by simplifying the application process, saving them time and duplicated effort,” he said.
“Anything which promotes competition and a greater range of options in the finance market is especially critical, and especially welcome, right now,” McTague said.
According a study by Codat, just six percent of firms surveyed said they were satisfied with the current SME credit market, while some 55 per cent of business owners were forced to borrow in their own name to fund their business. Almost half said they struggled to access loans due to the tangles of red tape.
The calls come as pressure grows on regulators and ministers to up the speed of movement on data sharing and open banking.
However, open banking was determined to have entered a “new phase” this month, after the Competition and Markets Authority found that the UK’s six largest banks have implemented the necessary open banking requirements.
The department for Business Energy and Industrial Strategy has been contacted for comment.