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55% of SMEs Have Taken out Personal Loans for Funding Finds Codat

Open banking could be the key to reducing the funding gap for small businesses, argues Codat after its research highlights a negative attitude towards available financing options among SME decision-makers.

The SME API provider’s ‘Closing the small business funding gap‘ report, reveals that 55 per cent of SME-decision makers have taken out a personal loan to help fund their business. The research also shows that 47 per cent of SMEs that were in the market for credit are finding it difficult to access external capital.

The report details how difficulty in accessing credit for small businesses has also resulted in ‘growing cyniscm’. Seventy-three per cent of those interviewed had something negative to say about existing finance options. The fact that it is too expensive, too hard to get and too complex were all cited as reasons for negative feelings in the space.

Because of these challenges, 72 per cent of businesses surveyed said they were unlikely to apply for external finance next year. Over half of those surveyed also said one reason for this was because the banks are too off-putting. This presents a clear issue during a time when many SMEs require help. During the cost of living crisis and rising energy bills, many SMEs could benefit from extra finance.

Over a quarter of SMEs who were open to credit (27 per cent) said that their business would grow faster if accessing credit was simpler. This number rose to over half of businesses with over 10 employees, which contribute 31 per cent of all turnover in the economy.

Open banking can solve lending issues

Codat‘s report calls on progress to data sharing practices to improve SME access to credit. The company suggests that technology can provide an easier and quicker way to share consented, real-time data between SMEs and potential lenders. It explains that this is the first step in reducing the UK’s funding gap.

Alex Cardona, Codat SMEs
Alex Cardona, COO and co-founder, Codat

Alex Cardona, COO and co-founder at Codat said: “The small business credit landscape is not set up for businesses or lenders to succeed. Lenders don’t have the necessary insight to make accurate decisions and the application process is so awful for SMEs that they’d often rather take out a personal loan to fund their business – or even make do without the cash they need.

“The existence of this dynamic is completely unnecessary given that the technology to resolve it is readily available. An updated approach to open data can enable standardised data flows between SMEs and lenders, resulting in instant and consistent loan applications. Closing the multi-billion pound funding gap will boost SMEs and fuel dramatic growth in the wider economy, it’s now just a question of making it happen.

“Regulators must not miss out on the opportunity to keep the UK at the forefront of progressive technology regulation, and must not stall on the promising start made by open banking.”


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