The move is an attempt to tackle the paucity of reliable credit information available on smaller companies by providing lenders – particularly newer banks – with more data.
A pilot scheme being run by HM Revenue & Customs is seeing companies’ VAT payments data shared with credit ratings agencies so they can provide more reliable information to banks and other lenders, the Daily Telegraph understands.
It is feared that sparse and often inconsistent information on small firms’ credit histories, when combined with banks’ centralised decision making processes, is leaving viable small businesses unable to secure credit. The problem has been dubbed “computer says no” banking.
An analysis of 100 private companies’ credit reports by three leading credit ratings agencies – Dun & Bradstreet (D&B), Experian and Creditsafe – in 2011 found they recommend vastly different credit limits on the same businesses – with an average variation of 150pc.
They also often fail to agree whether small companies’ credit risk is improving or deteriorating.
Russel Griggs, the former head of the CBI’s small business council, said the problem is most pronounced for the smallest businesses.
Prof Griggs, who will publish a report on credit scoring of small businesses in June, said: “A lot of people don’t realise that in micro businesses, it’s you being judged, not the business. Your credit history as a consumer is actually as important as your business plan.”
He added that business borrowers seeking less than £25,000 are being judged under the Consumer Credit Act, an obligation that is “acting against business lending”. “Banks are supposed to apply all sorts of criteria to fit that but you should judge a business separately to how you judge a consumer.”
Last year, Prof Griggs oversaw an independently monitored appeals process for companies rejected for bank loans. He said the fact that four in ten were overturned on appeal was sometimes down to misleading credit scores. “When the bank looks again, they say ‘fine’. A better approach to this will get around a lot of the initial declines.”