Small business owners are taking out personal loans to bridge a £22billion funding gap in the UK’s small and medium-sized enterprise (SME) sector.
A new study from software provider Codat has found that 55% of SME managers seeking finance have taken out some form of personal finance to fund the business.
More than a quarter of these business owners said their business would grow faster if there was easier access to credit.
47 percent of small business owners who are in the credit market said they have difficulty accessing external capital, and 73 percent have a negative view of the financing options currently available.
Read more: Mambu partners with Amazon, Google and Microsoft
Alex Cardona, managing director and co-founder of Codat, said the use of open banking could improve access to business finance for SMEs.
“The small business credit landscape is not designed for businesses or lenders to succeed,” Cardona said.
“Lenders lack the knowledge to make accurate decisions and the application process is so burdensome for SMEs that they often prefer to take out a personal loan to finance their business – or even get by without the money they need. need.
Read more: Interest rates rise and cost SMEs £13.6bn
“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 loan.”
It is estimated that there is a £22 billion access to credit deficit in the UK, and Codat has found that SMEs are increasingly unable to bear the financial and administrative costs associated with demand solutions of financing.
“Closing the multi-billion pound funding gap will boost SMEs and fuel dramatic growth in the wider economy, it just needs to be done,” Cardona added.
“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.”
Read more: The FCA will investigate the impact of Big Tech