Credit and Finance, News and Insight
Bank referral rules to help SMEs find alternative lenders, but how can you help yourself?
In our previous post we saw how the new government initiative, which soon comes into force, ensures that big banks who decline credit to an SME must then refer them to an alternative lender.
Three finance platforms were announced in March’s 2016 budget: Business Finance Compared, Funding Options and Funding Xchange – any bank which declines an offer of credit must refer the SME to one of these three platforms, who will then match the SME with a suitable lender to heighten their chance of securing credit.
This should give a huge boost to the SME community and in theory open up multiple avenues by which an SME can develop – which is great news, but are you doing everything you can to maximise the possibility of securing credit from the first lender you visit?
It’s estimated that around 150,000 small and medium sized businesses are declined bank funding every year1, however simple checks on your business credit score can help you to decide on the best time for you to take that step and apply.
Specialist products are available on the market which enable you to access your own business credit score and report, giving you the opportunity to choose for yourself if you feel you’re in a position to apply for funding. If not, understanding your full credit report will help you to decide on how to make the necessary improvements needed.
One notable benefit to checking your own credit score through a specialist ‘own business report’ (as opposed to having a hard credit check run) is that checking for yourself does not leave a footprint or have any effect on your score.
Accessing your own report also has the added advantage of the inclusion of sensitive data – so you can see exactly what the lenders see, when making credit decisions against your business.
If you do find yourself looking for alternative lending, the new SME Credit Data Sharing scheme has been implemented to make the application process smoother.
So what is the SME Credit Data Sharing scheme?
The industry-wide scheme came into force 1 April 2016 and essentially means that elected banks are required to share their SME customers credit account information with designated Credit Reference Agencies (CRAs).
By doing this SMEs have widened access to finance, and means challenger banks and alternative finance providers can evaluate the creditworthiness of the SME applicant easier.
The scheme is predicted to produce increased competition amongst lenders, improved risk management and access to more finance choices for SMEs – ultimately helping them to expand and grow.
Max Firth from Experian (who are one of the designated CRAs), believes that the SME Credit Data Sharing scheme will have an overall positive effect on the economy, “It’s vital for the continued growth of the economy that lenders can make informed, responsible decisions so SMEs can access affordable finance. We have a long track record of supporting alternative finance providers and new players in the market to provide additional sources of funds to SMEs. We also work with small businesses to ensure they’re seen in the best possible light by finance providers when making a lending decision.” 2
Be confident when applying for credit and check your business credit score in advance. Use Experian’s My Business Profile to evaluate for yourself if you feel you are in a prime position to apply for funding and if not, use the information, assistance and support available to make the necessary improvements.