Open banking may be the key to securing finance for UK SMEs, study finds

By Puja Sharma

Nearly one million UK SMEs fail to access finance using traditional means of borrowing in the last year – could open banking hold the key to extra investment for small businesses?

One in three UK-based small and medium-sized enterprises (SMEs) who sought access to finance were denied in the last year, according to new research from Yolt, Europe’s rapidly accelerating smart payments, and data enrichment platform. This resulted in an estimated £3.7bn lost in potential funding for UK SMEs.

Small businesses seek funding to fuel growth

The research found that in the last year, the average SME sought to borrow £331,275 in financing to help grow their business. However, on average, small businesses managed to borrow approximately £50k less than this. Business leaders are seeking similar amounts in the coming year (£332,289) with a specific focus on investing to help grow their business including new equipment (36%), product development (21%), and improved technology (17%).

Business leaders want a better financing solution

For small businesses denied funding, leaders cited the age of their business (31%), the levels of existing business debt (22%), and the lack of sufficient collateral (20%) as factors in the decision. Medium-sized businesses (50-250 employees) were the most likely to be refused funding (56%).

“SMEs represent the foundation for a thriving economy, in the UK they represent 99% of all private sector businesses; as such, we must nurture SME growth. Traditional borrowing, limited as it is, can make access to finance difficult. This can impede growth and make it hard for small businesses to achieve their true potential.” said Nicolas Weng Kan, Chief Executive Officer at Yolt.

Even for successful candidates, the process of borrowing money via traditional means was rarely seamless. Only one in five SMEs (20%) described the process of borrowing as easy and less than 10% felt the process was low effort or utilised technology to integrate with their systems to give the most reliable result.

Small business leaders are extremely open to using technology to refine the borrowing process. Two out of three SMEs (66%) are willing to securely share their bank account data to improve their chances of borrowing money. This follows previous research which found that sharing of data via open banking technology could significantly increase approvals and reduce the processing time of SME borrowing by 85%, significantly benefitting both the lender and recipient.

“We can see a clear desire from small business leaders in our research to use the power of their data and insight to allow for more accurate decisions when it comes to borrowing money; open banking is the solution to this. By employing open banking technology, lenders can get a clearer picture of a business’ behaviours and can then provide financing with far more confidence: it’s not about taking on extra risk but accessing a great level of insight. This technology also makes the application process quicker and automated, allowing for efficiencies on both sides.” Kan added.

Key highlights

• One-third of UK small and medium-sized enterprises (SMEs) who have sought access to finance in the last year have been denied access – with £3.6bn in lost potential funding.
• SMEs which faced funding pushback was due to their business being too young (31%), too-high levels of existing debt (22%), and insufficient collateral (20%).
• Only one in five small businesses felt the process of borrowing was easy.
• Two out of three SMEs who have previously tried to access finance would be willing to share business bank account data to improve their chances of securing funds.