08 January 2014
The Government has announced proposals looking to improve access to SME credit data.
Under the new rules, new ‘challenger’ banks would find it easier to check credit worthiness of potential business customers, which in turn, would make it easier to provide finance.
The proposed rules are currently in the consultation stage, but if passed, will see an increase in credit lending competition in the market, as it will become easier for challenger banks and alternative finance providers to enter the market and provide credit to SMEs.
Banks will be required to share their SMEs’ credit data through credit reference agencies, as part of the proposed rules, according to a Government statement.
The Government has also added that despite SMEs accounting for over half of private sector employment and nearly half of private sector turnover, a lack of information about the creditworthiness of SMEs has limited the numbers of providers of SME finance. Therefore, the four big high-street banks control 85% of SME lending.
Financial Secretary to the Treasury, Sajid Javid, said that the best way to deliver [a banking system that supports Britain’s economy and its SMEs] is to increase competition in the sector and remove the barriers to new sources of finance for SMEs. [Therefore], requiring banks to share data is an important part of creating a more level playing field that will enable more providers to enter the market.’
The consultation will invite views from stakeholders and the industry on the policy proposals and will run until 17 February 2014. The government then intends to bring forward legislation in the next session of Parliament.