The decision by the government to launch a new credit data-sharing scheme that will allow information to be shared equally between all finance providers underlines the importance of alternative finance.

While the 2016 Budget was largely well received by small business owners, a lack of action with regard to improving access to alternative finance was a notable black mark against the Chancellor. The sector has expanded dramatically in recent years in the face of prolonged caution from traditional lenders and has established itself as a mainstream provider of small business finance. The introduction of the new credit data-sharing scheme highlights how vital the likes of invoice finance, peer-to-peer lending and crowdfunding have become to the financial health of SMEs in the UK.

Under the new scheme, nine banks and three credit rating agencies will share credit data details with all finance providers (rather than just traditional lenders), a move which is designed to increase competition in the SME finance sector and make it easier for alternative finance companies and challenger banks to offer small loans to SMEs.

Despite headwinds (uncertainty surrounding EU membership, pension auto enrolment, the reform of the national apprenticeship scheme, the introduction of the National Living Wage, the growing cost of cybersecurity, the continued failure to meaningful tackle late payment, etc.), there are signs that access to finance for small businesses is improving in 2016. At the same time as the government has announced the overhaul of SME credit data sharing framework, Santander and Lloyds Bank have unveiled new small business finance facilities. Santander has launched a same-day SME funding service in partnership with small business finance solutions firm Kabbage and Lloyds has pledged to help 5,000 SMEs to become first-time exporters in 2016.

While the moves to reengage with the SME sector should be considered positive, their success depends partly at least on the willingness of small businesses to return to institutions towards which there remains a great deal of mistrust. Hence, the importance and value of alternative finance to SMEs in the UK.

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