SMEs account for 99.9% of business population in the UK, forming the backbone of the economy. Yet, many businesses continue to struggle when it comes to accessing finance. According to a recent British Chambers of Commerce (BCC) survey, nearly half (49%) of businesses said it’s become harder to obtain funding over the past three years.
While economic conditions play a part, one of the most persistent and often overlooked barriers is the lack of trustworthy, consistent, and accessible financial data.
A recent CFIT report also highlighted a critical issue plaguing the lending ecosystem: fragmented, inconsistent, and opaque financial data that hampers SMEs credibility and lender’s ability to assess risk fairly and efficiently.
The Current State of SME Lending in the UK
The Funding Gap
Despite being critical to the UK economy, SMEs face a persistent funding gap. According to the British Business Bank (BBB), even before recent economic challenges, around 30% of smaller businesses were using external finance, yet many more could benefit from it but don’t apply after their first rejection. This funding gap is the result of information asymmetry between lenders and borrowers, high transaction costs for due diligence, lack of traditional collateral, and complex application processes.
The Data Problem: A Fragmented Landscape
The lending environment is plagued by entrenched data problems that impede both access to finance and the integrity of decision-making. Financial data is scattered across various formats such as accounting tools, bank statements, tax returns and more, making standardisation and sharing difficult. Legacy systems and manual processes only add to this inefficiency, while inconsistent lender metrics leave SMEs unsure of what data to provide.
Trust and transparency pose further obstacles. SMEs are understandably cautious about who accesses their data, how it’s used, and whether it could impact future lending outcomes. Lenders, meanwhile, remain skeptical about the reliability of self-reported data and continue to lean on backward-looking metrics, ignoring forward indicators and context like market position or growth potential.
This fractured, opaque environment limits smarter, more inclusive lending. This is where stronger data governance and standardisation play a transformative role.
The Importance of Data Governance and Standardisation
Data governance and standardisation have a key role to play in easing SME lending in the UK by making data accurate, secure, and in a consistent format. By having uniform data practices, it facilitates SMEs and lenders alike in making effective lending decisions, dealing with risks, and staying in regulatory compliance.
How Data Governance is Empowering Lenders
Enhanced Risk Assessment
Standardised and properly governed data enable lenders to create more reliable and advanced risk models. This consistency allows them to evaluate businesses efficiently, using both traditional financial records and alternative data sources, eliminating dependency on outdated metrics.
Operational Efficiency
Standardisation streamlines internal processes. With fewer manual checks and less need for data validation, lenders can process applications more quickly. The cost and complexity of due diligence go down, which makes it easier to serve smaller businesses.
Regulatory Compliance
Good data governance also helps lenders meet their regulatory obligations. With clear data trails and better control over data use, lenders can more easily report to regulators, justify lending decisions, and demonstrate that they’re following responsible lending practices. It simplifies tasks like stress testing and analysing lending portfolios under different market conditions.
How Data Governance is Simplifying Lending For SMEs
Improved Access to Finance
For SMEs, standardised data creates a more transparent and accessible route to funding. It allows them to present their financial health in a clear and consistent way to multiple lenders. With the emergence of financial ‘passporting’, businesses can reuse verified financial data across different platforms without duplicating effort and opening the door to more lending options.
Faster Decisions
With standardised, high-quality data, lenders can process and assess applications much faster. This can be the difference between getting funds in time to cover a cash flow deficit or losing a business opportunity because of delayed decisions.
Lower Cost of Borrowing
With clear, consistent, and standardised financial data, SMEs are in a stronger position to negotiate more competitive rates and secure finance that better suits their actual needs. As lenders gain confidence through better visibility, they’re more willing to lend to businesses that may previously have seemed too risky to assess. This helps to drive down borrowing costs for SMEs.
The Smart Data Bill: A Catalyst for Change
The UK government’s Smart Data Bill is a major advancement in solving data governance issues in SME lending. The bill proposes a number of important provisions that have a direct effect on the lending environment:
Business Data Standardisation: It establishes consistent data formats for company information, financial activities, and tax records. This standardisation improves the reliability and uniformity of business data, creating a common language between SMEs and lenders.
Consent-Based Data Sharing: This framework intends to encourage small businesses to consent with data exchange. In this model, companies have better control over their books and the safe sharing of data with future lenders.
Improved Data Portability: This provision enables companies to transfer information without any restriction among various service providers, facilitating innovation and competitiveness in the lending environment. This portability gives companies leverage over their financial past when they go to various lenders.
Together, these provisions lay the foundation for more transparent, efficient, and inclusive lending. The Smart Data Bill is itself not an isolated effort but part of an overall suite of UK government policy that collectively intends to modernise the financial infrastructure and enhance the availability of access to finance by SMEs.
UK Government Initiatives and Regulatory Framework
The UK government has demonstrated leadership in financial data standardisation through several key initiatives:
Open Banking (2018): Mandated by the Competition and Markets Authority, requiring the nine largest UK banks to provide secure API access to account data for licensed third parties.
Smart Data Bill: Introduces critical provisions for business data standardisation, consent-based data sharing, and improved data portability, creating a legislative foundation for trusted data exchange.
FCA Regulatory Sandbox: Facilitates testing of innovative lending models leveraging standardised approaches, including accounting software integration and blockchain-based verification.
Post-Brexit Financial Strategy: Proposes a “Digital ID” framework for streamlined verification, enhanced data protection balancing innovation with privacy, and expanded data-sharing framework
These initiatives collectively lay the groundwork for a more transparent, standardised, and innovation-friendly financial ecosystem enabling SMEs and lenders to engage in smarter, more secure data-driven finance.
How SMEs Can Implement Data Standardisation and Governance
Fragmented financial data and limited access to funding remain persistent challenges for SMEs. While the UK government has introduced various initiatives to support small businesses, implementing data standards and ensuring consistent financial governance remains an on-going task. It often requires time, resources, and technical knowledge which SMEs may not have to spare.
Rather than starting from scratch, SMEs can streamline the process by using a cloud-based financial data intelligence platform like Pulse. Designed with a user-friendly interface, it helps automate and streamline data standardisation and governance.
UK based SMEs can leverage Pulse to consolidate all their financial data under one roof and monitor their fiancnail health in real-time. But it doesn’t stop there. It also offers various tools like DebtorIQ for real-time accounts receivable analysis and aiPredict for cash flow forecasting, SMEs can assess performance and make ifsys-driven decisions, thus driving growth and sustainability. Pulse offers a practical way to transform financial data into actionable business insights, helping businesses stay focused on growth. To explore Pulse’s full potential, contact us today.
Conclusion
Data standardisation and governance are not just technical fixes but strategic enablers. When financial data is reliable, consistent, and transparent, the entire SME lending ecosystem becomes more inclusive, efficient, and dynamic.
This journey requires collaboration between government, financial institutions, technology providers, and SMEs themselves. However, the potential rewards would be a more dynamic economy, stronger businesses, and increased access to funds for SMEs. The UK, with its leading fintech industry and forward-thinking regulatory strategy is spearhead this transformation in 2025 and beyond.
