A new scheme backed by the Treasury which is expected to make it easier for small and medium sized businesses to get finance from new banks and alternative finance providers has gone live today.

The small and medium-sized businesses Credit Data Sharing Scheme should make it easier for new banks and alternative finance providers to check the credit worthiness of potential business customers.

The Treasury says the scheme is designed to make it easier for new challenger banks and alternative finance providers to check credit worthiness of potential business customers. This will improve the chances of them being able to provide finance to SMEs.

The government is requiring nine banks and three Credit Reference Agencies (CRAs) to share, with the SME’s permission, the credit information they hold on SMEs equally with all finance providers. This will increase competition in the SME lending market and help more businesses find the funding they need to grow, says the Treasury.

A number of bodies, including the Office of Fair Trading and the Competition Commission, have highlighted how a lack of information about the creditworthiness of SMEs has been a major barrier to competition in the SME lending market.

The biggest banks currently have access to much more data than challengers, says the Treasury, and the new regulations will enable over 100 alternative finance providers to compete effectively in the SME lending market. SMEs account for over half of private sector employment and nearly half of all private sector turnover.

Under the Credit Information Regulations RBS, Lloyds, HSBC, Barclays, Santander, Clydesdale and Yorkshire Banks, Bank of Ireland, Danske Bank and First Trust Bank (Northern Irish subsidiary of Allied Irish Bank) will all be required to share data on their SME customers with the designated CRAs, Experian, Equifax and Creditsafe. These CRAs must then share this data equally with all finance providers.

Harriett Baldwin, Economic Secretary to the Treasury, said: “The government is determined to encourage a competitive banking system that supports growth and creates jobs. Small businesses are the backbone of Britain’s economy and it is right we make every possible source of finance available to them.

“The best way to deliver this is to increase competition in the banking sector and remove the barriers to new sources of finance for SMEs. Requiring banks to share data is a major structural reform that will level the playing field between banks and alternative finance providers. The government expects data sharing to begin later this year when tests between banks and CRAs confirm that data can be shared accurately and securely.”