Codat and Plaid partner to improve small business lending in the UK


 In 2020, the UK saw more than double the loans made to small and medium enterprises (SMEs) than the previous year, at more than £54 billion. Despite this significant increase in available credit, SMEs still experience a massive funding gap of over £55 billion . With this in mind, it’s clear that SMEs face a challenging economic environment right now and likely will continue to for the next several years.

Together, Codat and Plaid enable SMEs to instantly connect and share a comprehensive range of financial data with lenders during the application process so they can more quickly gain access to the capital they need.

Plaid’s API supplies permissioned banking data, which means that SME owners grant Plaid permission to access their transactions from a trusted bank source, and Codat’s API provides access to contextual accounting, POS, and commerce data. Combining and comparing these two sources allows lenders and underwriters to form a complete and verifiable understanding of a business customer, beyond what’s available from credit bureaus, via one simple API integration.

Through the partnership, Codat and Plaid aim to change the loan underwriting process. Despite SMEs’ outsized role in the UK economy, the obstacles they face in financial services are often ignored. Fifty-seven percent of all SME credit applications are either abandoned because they are just too hard, or ultimately rejected. And the average conversion of SME loans from a sampled high street bank was only 8%.

Furthermore, access to these combined data sources also can help fight fraud. Codat’s API offers deep insight into a business’s financial picture. When paired with Open Banking data, lenders can corroborate the actual financials of a business with what they submitted in the application process.

Access to more comprehensive and up-to-date business financial data on an ongoing basis has even more added benefits. For example, it enables lenders to flag key indicators early like increasing creditor pressure or concentration risk that Open Banking data alone would not reveal. As a result, they can assist their customers with monitoring their cash-flow or tailor the loan servicing experience to an SME’s particular financial needs.

SMEs face many obstacles as a result of the economy right now, and legacy processes in financial services should not limit their access to capital or add to their stress — especially when the tools exist to address these issues. If you’re interested in exploring how Plaid and Codat could improve your SME underwriting, reach out to our team.

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