CFIT coalition develops data-driven SME lending framework

Focusing on SMEs with between three and 50 employees, particularly in under-resourced regions, the initiative will analyse how both conventional and alternative commercial credit data can be combined to inform lending decisions. 

The project aims to evaluate how technologies such as Open Finance and real-time data sharing could give lenders a fuller understanding of a business’s creditworthiness.

Alternative data to inform credit decisions

The group intends to overlay traditional credit metrics with alternative sources such as transaction histories, cash flow patterns, income trends, payment records and operational performance over time. By doing so, they plan to examine whether past loan applications, previously rejected under standard credit assessment frameworks, might have been eligible under different evaluation criteria. 

Officials from CFIT said the work follows on from previous Coalition efforts that concentrated on improving banks’ capacity to issue loans. This new phase will instead address the demand side by encouraging businesses to apply for credit through clearer insights into how their financial data affects lending outcomes. 

According to a recent British Business Bank study, six in ten SMEs that avoid seeking finance are unaware of available options, while 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. Government data has also indicated that a majority of SMEs prefer to grow slowly rather than assume new debt, highlighting a confidence and information gap rather than a lack of need.

To bridge this, the Coalition plans to develop a dashboard tool that consolidates the relevant financial indicators influencing lending decisions. The aim is to provide SMEs with a more comprehensive and accessible view of their financial profile, helping them understand how they are assessed by lenders and what they might change to improve future application outcomes. 

Participating institutions include major banks and payment networks such as Lloyds Banking Group, HSBC UK, and Mastercard. A regional breakdown will also be part of the project’s research, intended to identify areas where credit access challenges are most pronounced.