According to recent statistics from UK Finance, UK lenders approved over 290,000 loans and overdrafts to small and medium-sized businesses (SMEs) last year – worth £28 billion in total. At the same time, the Bank of England recently highlighted a £22 billion funding gap in the SME loan market, with many businesses struggling to obtain capital to finance growth opportunities.

Niels Turfboer, Managing Director of business lender Spotcap, recently spoke to Varun Paul, the Bank of England’s Senior Manager, Future of Finance, to find out more about the project.

Niels Turfboer, Spotcap: Let’s start with the big picture. What is the SME credit file and what could it mean for small and medium-sized businesses?

Varun Paul, Bank of England: In June, the Bank published a review on the Future of Finance, which considered how the economy is evolving in response to demographics, data, technology and climate change. One of our five priorities seeks to address the £22 billion SME funding gap in the UK, by championing a platform to boost access to finance for small businesses. This could offer small and medium-sized businesses a portable credit file, enabling them to harness their data to shop around for more competitive and diverse sources of finance.

 Niels Turfboer, Spotcap: What has been the feedback from businesses, industry associations and the Government in response to the proposal?

 Varun Paul, Bank of England: Since publishing, we have been busy engaging with industry and other stakeholders to understand better the potential benefits of the platform. And it has also helped us to understand the technical and design features that developers of the platform may wish to consider.

All those that we have engaged with support the principle of increased data mobility. Many highlighted examples of recent innovations that enable firms to bring data together through bilateral agreements. But they agreed that a degree of standardisation would help level the playing field and create a more competitive, diverse and effective market for SME finance.

Niels Turfboer, Spotcap: What do you think could be potential pain points?

Varun Paul, Bank of England: Based on the feedback we received, the platform will need to be user-friendly, with instant and seamless authentication. It will also need to be highly transparent about what data is being shared, with whom and for how long. Without those, it will fail to gather the support of users.

Niels Turfboer, Spotcap: Is there anything Manchester-based businesses can do now to support the Bank’s efforts?

Varun Paul, Bank of England: We hope to start reaching out to businesses throughout the country later this year, through the Bank’s Agency network and with the support of relevant industry groups. We will be keen to hear from them about the constraints they face in finding and getting access to the finance they need to grow and thrive. This engagement will be key to ensuring the success of the platform.

Niels Turfboer, Spotcap: The portable credit file could drive immense change to the business funding landscape. In what other ways do you see it developing over the next few years?

Varun Paul, Bank of England: As banks have focused increasingly on larger corporates, there has been considerable growth in the number of ‘alternative lenders’ providing finance to SMEs. I think we will continue to see new entrants in this space, with new business models exploring ways to use the vast array of data now available and offering an increasingly consumer-like user experience.

Niels Turfboer, Spotcap: Thank you so much and it was a pleasure speaking with you Varun and good luck with the initiative.

More information on Varun Paul – Senior Manager at the Bank of England

Varun Paul is a Senior Manager at the Bank of England. Varun joined the Bank as an Economist in 2008 and, most recently, has been leading on issues related to fintech. Find out more about the portable credit file here:

https://www.bankofengland.co.uk/research/future-finance/champion-a-platform