Next week is expected to see some significant recommendations on the way in which UK banks offer lending to small business customers. The Competition and Markets Authority (CMA) is expected to order seven major high street banks to produce new loan pricing and eligibility tools to address the lack of competition in SME lending.
One of the sector’s observers Equifax says the move will benefit small businesses that currently find themselves coming up against the ‘closed’ sign from banks. “The CMA’s retail banking market investigation has shown that many SMEs turn straight to their current account provider when they need a loan, rather than shop around for the best rate,” said Nic Beishon, Head of Commercial, Equifax UK & Ireland.
“By forcing the big banks to implement new lending tools, the CMA intends to simplify and speed up applications to encourage competition in the sector. While the new tools can be implemented without lengthy and costly internal IT changes, banks must act now to ensure SMEs can easily access the best finance deals within the six month window.
A way of speeding up the loan application process
“The current state of play is costing SMEs time and money. In 2015, we estimate SMEs collectively spent nine and a half years applying for loans – almost one year of this was by customers who went on to be declined. The new tools will circumnavigate the full underwriting process to provide quick but reliable indications of eligibility for credit, as well as an indicative APR. The new tools will see laborious form filling cut from as long as an hour to a matter of minutes.
“The CMA is focusing on seven banks in the initial stages, but any bank serious about targeting SMEs, including the challengers, should introduce the same tools to ensure their offering remains attractive. Otherwise they run the risk that customers turn to the banks with the easiest application tools.”
The CMA’s initial report focused on improving the transparency and efficiency of the way in which banks deal with their customers. Next week will mark the next step in that process.