The Government is consulting on new rules requiring banks to share credit data they hold on SMEs through credit rating agencies.

In the 2013 Budget, George Osborne promised the Government would “investigate options for improving access to SME credit data to make it easier for new lenders to assess applications for loans to smaller businesses.” HM Treasury has been working with the Bank of England, the Office of Fair Trading (OFT), the FCA and the Department of Business Innovation and Skills (BIS) to investigate ways of improving access to SME credit data to increase competition in an area that is viewed as being dominated by the larger high street banks.

Both the OFT and the Competition Commission have reported that a lack of information about the credit worthiness of SMEs has made SME lending riskier resulting in fewer providers of SME finance.  It is anticipated that improved access to SME credit data through greater competition and innovation in SME lending should improve the cost and quality of services offered.

SMEs are a vital part of the UK economy and account for over half of private sector employment and nearly half of all private sector turnover.  The ability of SMEs to access finance is important for funding business investment, ensuring businesses reach their growth potential and for facilitating new business start ups.  The government seems to be already focused on the need to increase SME lending in other ways, as can be seen from the recent changes made to the Funding for Lending Scheme.

Financial secretary to the Treasury, Sajid Javid, has explained that “the Government is determined to build a banking system that supports Britain’s economy and its small and medium size businesses… the best way to deliver this is to increase competition in the sector and remove the barriers to new sources of finance for SMEs.  Requiring banks to share data is an important part of creating a more level playing field to enable more providers to enter the market.”

Bank responses to the proposals remain to be seen and whether such access will fundamentally affect the nature of business lending or merely add an additional administrative burden on the high street banks is not yet clear.

The consultation will run until mid-February 2014 with the intention that the Government brings forward legislation in the next session of Parliament.

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