Credit Management June 2019

OPINION
CUSTOM
MADE
Access to HMRC data for CRAs will enable
better credit decisions.
AUTHOR – Tim Vine
THE latest statistics
from the Federation of
Small Businesses confirm
that small and medium
enterprises (SMEs) make up
99.9 percent of all private
sector businesses in the UK. SMEs form
the backbone of our economy and play an
essential role in the growth of the UK going
forward.
Back in 2013, the Government published
a consultation paper showing that the four
largest banks held an 85 percent share of
the SME lending market. This document
highlighted the need for increased
competition to support the best interests
of the market.
In 2015, the Government launched
the Small Business, Enterprise and
Employment (SBEE) Act that was
dedicated to supporting the growth of
small businesses, increasing exports and
encouraging innovation.
INCREASING COMPETITION
Funding and investment are vital for
growth, and one of the aims of the new
bill was to improve access to finance for
SMEs by encouraging greater competition
in banking to address the imbalance in
the market. Key to this objective was
ensuring that alternative providers and
challenger banks were better able to
assess the credit risk of SMEs. By driving
increased transparency this would deliver
a more level playing field across the UK’s
commercial lending market.
The Government announced that they
would require certain banks (above a
certain market share threshold) to share
their commercial credit lending data with
designated Credit Reference Agencies
(CRAs). This would deliver more equal
access to data and make it easier for SMEs
to seek funding from alternative finance
providers as well as traditional banks.
This new commercial credit data sharing
scheme is administered on behalf of the
Government by the British Business Bank.
CRAs must apply to the British Business
Bank and complete a thorough application
process to receive designation.
OPENING UP THE DATA
The scheme requires the nine designated
banks (Royal Bank of Scotland, Barclays,
HSBC, Lloyds, Santander, Clydesdale
Bank, Bank of Ireland, AIB and Northern
Bank) to share current account data and
information on existing loans and credit
cards of their small and medium business
customers. This data is provided under
a strict framework to approved Credit
Reference Agencies who then integrate the
information into their workflow to provide
more accurate insights on an SME’s
financial performance. There are currently
four designated CRAs; Creditsafe, Dun &
Bradstreet, Equifax and Experian.
Greater access to this data makes it
easier for other finance providers to check
the credit worthiness of potential SME
business customers and better inform
credit decisions. The aim is to provide
more open access to stimulate more
competition in the SME lending market
and increase the range of funding available
to businesses who are looking to grow, and
to support start-ups seeking initial capital.
THE IMPACT TO DATE
The scheme appears to be making an
impact, with the British Business Bank’s
recently published Small Business Finance
Report confirming that the growth of
alternatives to bank finance is continuing
(although the pace has slowed) and
awareness of finance options outside of
traditional lending is also increasing.
Dun & Bradstreet research in November
2018 also found that over two thirds (67
percent) of SMEs believe the availability
of finance has a significant impact on
their business success. When asked if they
received financial support, 43 percent of
respondents had received funds and 57
percent had not, with the most popular
source still a business loan from a bank
The Recognised Standard / www.cicm.com / June 2019 / PAGE 20