Banks will need to share data on small business lending

Over recent years, the supply of funding from banks to small businesses has suffered as a result of the global financial crisis.

The government has taken various steps to try and improve this situation and while there have been some improvements of late thanks to schemes such as the Funding for Lending Scheme, lending levels to small businesses are still being described as subdued.

In a further aim to try and improve the supply of credit to small businesses, new proposals have been put forward that would require banks to share information about how creditworthy small businesses they lend to actually are. The aim of these proposals is to increase competition in the market by enabling lenders to more clearly see the credit history of business customers hoping to get finance.

Both the Office of Fair Trading and the Competition Commission have said that lack of information about the creditworthiness of small businesses has resulted in many new players in the market failing to get finance. With SMEs said to account for around 50 percent of private sector employment, the government is keen to take further steps to try and improve lending levels to these companies in a bid to see a knock on effect on the general economy.

One Treasury official said that it was important to encourage banks to share this sort of information in order to create more competition and greater fairness in the market. He said that this would enable more providers to enter the market and could therefore boost the credit opportunities available to SMEs across the UK.

In addition to this, the Treasury has also stated that it plans to enable customers to pay cheques into their accounts digitally by taking a photo of the cheque on their phones. This could vastly reduce waiting periods relating to cheque clearance, which would also be great news for businesses. Smaller businesses in particular can suffer when it comes to cash flow, so these plans could help to improve their cash flow and reduce financial problems and issues.

The Federation of Small Businesses welcomed the move to allow for digital cheque payments into accounts, stating that at present many businesses and customers found the cheque clearance process and timescales very frustrating. The Treasury said that this was one of a number of ways in which customers would be able to make use of advanced technology.

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Business4Beginners has been advising new businesses owners since 2013. The founder, Paul Bryant, has created, grown and sold several successful businesses and remains the editor and fact-checker of all content published on the site.
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