Lack of credit information renders firms ‘invisible’

Recent research suggests that more than 1.6 million UK firms struggle to access funding because there is insufficient information available about their financial track record.

The research found that the lack of information means that these businesses can be considered higher risk when it comes to obtaining credit, so they may miss out on the funding required to grow or trade credit needed to buy products and materials. Lenders weigh up risk by consulting financial records and if there are few records to consult, they are not likely to part with funds.

One reason a firm might be ‘invisible’ is that they have not yet filed their first set of accounts. Some 600,000 new businesses start in the UK every year, so it is only logical that a large number of enterprises have no credit history.

There are 4.4 million live incorporated businesses registered with Companies House, but 700,000 of these are dormant, so they may have no requirement to access finance.

However, there are ways that invisible businesses can become visible and less risky for lenders, such as by showing up via other data sources. These include the Government’s mandatory Commercial Credit Data Sharing (CCDS) scheme, which covers Current Account Turnover data (CATO), as well as credit accounts.

Open Banking technology can also provide smaller businesses with faster access to funding by eliminating much of the paperwork required to apply for finance. This also reduces the risk for lenders and the cost of serving small businesses.

As one of the report’s authors commented, by using these new data sources, lenders and trade credit, providers can make a more accurate assessment of businesses seeking finance and are therefore more likely to part with funds.

Nigel Fry, General Practice Partner at Milsted Langdon, said: “Building a strong credit record can be tough, but it could be important if businesses intend to access finance in future. As with most things in life though, it is about moderation and businesses should not build up excessive debts in hopes of one day acquiring the finance they require.

“Commercial credit scores can be difficult to understand and therefore it is often beneficial to speak with a finance specialist to explore the best method of seeking the funding you need. To find out how we can help, please contact us.”

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