Focusing on SMEs with three to 50 employees, particularly in under-resourced regions, CFIT will analyze how traditional and alternative commercial credit data can be combined to enhance lending decisions.
The project aims to explore how technologies like Open Finance and real-time data sharing could provide lenders with a more comprehensive understanding of a business’s creditworthiness.
Alternative Data for Credit Assessment
The initiative intends to integrate traditional credit metrics with alternative sources such as transaction histories, cash flow patterns, income trends, payment records, and long-term operational performance. By doing so, they will assess whether past loan applications that were previously rejected under standard credit assessment frameworks might have met eligibility criteria under different evaluation standards.
Officials from CFIT noted that this work builds on previous Coalition efforts aimed at improving banks’ ability to issue loans. The new phase focuses on the demand side by offering clearer insights into how financial data impacts lending outcomes, encouraging businesses to apply for credit more confidently.
According to a recent British Business Bank study, 60% of SMEs avoid seeking finance due to lack of awareness about available options. Research from Small Business Economics found that over 70% of SMEs were discouraged from reapplying for loans following an earlier rejection. This reluctance is reflected in a 20% real-terms decline in SME lending over the past decade, as evidenced by government data indicating that most SMEs prefer slow growth without assuming new debt.
To address these challenges, CFIT plans to develop a dashboard tool consolidating relevant financial indicators influencing lending decisions. The goal is to provide SMEs with a more comprehensive and accessible view of their financial profiles, helping them understand how they are assessed by lenders and what changes could improve future application outcomes.
Participating institutions include major banks and payment networks such as Lloyds Banking Group, HSBC UK, and Mastercard. The project will also conduct a regional analysis to identify areas where credit access challenges are most pronounced.
