Open banking could be the key to closing the funding gap for small businesses, says Codate after his research highlighted a negative attitude towards the financing options available among SME decision-makers.

The SME API provider’Closing the Small Business Financing Gapreveals that 55% of SME managers have taken out a personal loan to finance their business. The research also shows that 47% of SMEs that were in the credit market struggle to access external capital.

The report details how the difficulty of access to credit for small businesses has also led to “increasing cynicism”. Seventy-three percent of respondents had something negative to say about the financing options available. Being too expensive, too hard to obtain, and too complex were all cited as reasons for negative feelings in the space.

Due to these challenges, 72% of companies surveyed said they were unlikely to apply for external funding in the next year. More than half of respondents also said that one of the reasons for this was that banks were too reluctant. This poses an obvious problem at a time when many SMEs need help. During the cost of living crisis and rising energy bills, many SMEs could benefit from additional financing.

More than a quarter of SMEs open to credit (27%) said that their business would grow faster if access to credit was easier. This number has risen to more than half of companies with more than 10 employees, which contribute 31% of the economy‘s total turnover.

Open banking can solve lending problems

Codate‘s report calls for advances in data sharing practices to improve SMEs’ access to credit. The company suggests the technology can provide an easier and faster way to share consented real-time data between SMEs and potential lenders. He explains that this is the first step in reducing the UK’s funding gap.

Alex Cardon, COO and co-founder of Codat said, “The small business credit landscape is not designed for businesses or lenders to succeed. Lenders lack the knowledge to make accurate decisions, and the application process is so painful for SMEs that they often prefer to take out a personal loan to fund their business – or even go without the cash they need.

“The existence of this dynamic is completely unnecessary given that the technology to solve it is readily available. An up-to-date approach to open data can enable standardized data flows between SMEs and lenders, resulting in requests for Instant and consistent lending Closing the multi-billion pound funding gap will boost SMEs and fuel dramatic growth in the wider economy, it just needs to be done.

“Regulators must not miss the opportunity to keep the UK at the forefront of progressive technology regulation, and must not delay the promising start of open banking.”