As Government Launches SME Lending Review, New Tech Could Unlock £5bn in Credit Annually by Halving Declined Applications – FXE and CFIT-Led Coalition

Small and medium-sized enterprises (SMEs) in the UK miss out on an estimated £5 billion in potential access to credit each year, because they are unaware of addressable issues with their corporate credit profiles, according to research by FXE Technologies (“FXE”), as part of an industry coalition led by the Centre for Finance, Innovation & Technology (“CFIT”). As part of its coalition, CFIT is examining the role that digital fundability tools can play in improving SMEs’ access to finance. One tool being tested is FXE’s Funding Health Checker, which could transform SMEs’ visibility of how lenders assess their credit applications, after a pilot dramatically improved understanding of ‘fundability’ among four-fifths of companies.

FXE examined the credit profiles of 24,000 businesses declined for loans since 2019. It found that approximately 65% had “readily fixable” profiles, resulting in unsuccessful loan applications which could have been approved. Issues included excessive use of overdrafts, missed payments to suppliers, filing accounts late with Companies House and accounts showing a net negative asset position. The directors interviewed by FXE had frequently not understood that these behaviours would restrict their access to credit. Extrapolated to the whole population of UK SMEs, that equates to over £5 billion of potentially accessible debt financing left on the table.

A new tool could soon change all that, giving SMEs the kind of simple, objective and personalised feedback on loan applications that is already commonplace in consumer lending. FXE is working with CFIT’s latest coalition to test its prototype Funding Health Checker. This digital dashboard shows SMEs the data from CRAs, Companies House and other forms of alternative data that lenders use to review a company’s application, flagging areas of concern and suggesting actions to improve creditworthiness. In a pilot, 80% of participating SMEs said the tool significantly improved their understanding of their fundability; 85% planned to take the suggested steps; and 90% would recommend the tool to a peer. The CFIT-led coalition, supported by Mastercard, Lloyds Banking Group and HSBC UK, launched earlier this year to develop precisely this type of tech-driven solution to help SMEs who might be reluctant to apply for finance.

By clearly showing the financial habits and data points that affect lending decisions, the Funding Health Checker will help SMEs understand their financial health, how their business is viewed by lenders and what they can do to improve their chances of getting approved. This kind of education is vital to improving confidence among business owners, many of whom are unaware of the factors that determine credit readiness.

These findings come as the UK Government announced a review of the Mandatory Bank Referrals programme, aiming to increase SME loan application acceptance volumes. HM Treasury is seeking industry advice on improving the scheme, launched in 2015 to connect businesses declined for credit with alternative lenders. Currently, however, 94% of firms referred to a second lender are rejected again. These demoralising ‘double-declines’ contribute to a culture in which half of all UK businesses-owners become ‘permanent non-borrowers’. The consultation was launched after the UK Government accepted the recommendation made last year by the CFIT-led SME Finance Taskforce to review and improve the Bank Referral and Commercial Credit Data Sharing Schemes. It forms part of the Government’s wider ‘Plan for Small and Medium Sized Businesses’, which aims to unlock access to finance for SMEs and advance the work of the SME Digital Adoption Taskforce.

Katrin Herrling, CEO and co-founder of FXE Technologies, said: “Our research shows that half of businesses turned down by banks could access funding if they had the right guidance. The review of the Mandatory Bank Referrals scheme is the moment to address this. Funding Health Checker gives business owners the clarity and tools they need to turn rejection into opportunity.”

Rob Haslingden, Head of Impact Assessment and Engagement at CFIT, said: “By educating SMEs about their financial data, and providing these insights either prior to or at the point of credit application, we can help millions of businesses take the necessary remedial action to improve their creditworthiness, emulating how similar services in consumer credit have transformed access to mortgages and personal loans. The prototypes our Coalition is testing are particularly timely, as the Government drives forward its work to improve SMEs’ use of digital tools and expand their access to finance.”

Mark Barnett, Global Head of Small and Medium Enterprises at Mastercard, said: “Mastercard is committed to reducing the funding gap for small businesses by pursuing industry partnerships that improve transparency around credit decisions. It’s exciting to see the industry move toward consumer-grade experiences for businesses—mirroring how credit tools have transformed access to mortgages and personal loans. By educating SMEs about the financial data lenders use, we’re empowering them with personalised insights to take action and unlock new opportunities for growth.”

Chris Loring, Managing Director, Head of Commercial Lending and Working Capital at Lloyds, said: “We are excited to be working with the CFIT Coalition to identify innovative ways that support SMEs access to finance and amplify the critical contribution they already make to UK growth and productivity. Through this work the Coalition has demonstrated how data can be used to help businesses be prepared and ready to access lending. We are looking forward to exploring how we can take the outputs of this work to UK SMEs.”

Tom Wood, HSBC UK Head of Business Banking, said: “HSBC UK is pleased to be working alongside industry leaders in this coalition to establish innovative solutions that provide SMEs with the insights needed to enhance their credit profiles and unlock growth opportunities. This initiative aligns with our commitment to supporting small businesses in making financing more transparent and accessible.”