March 11, 2021

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

Richard Kotite

In 2020, the UK saw more than double the loans made to small and medium enterprises (SMEs) at more than £54 billion than the previous year. Despite this significant increase in available credit, SMEs still experienced a massive funding gap of around £55B in 2019. With this in mind, it’s clear that many SMEs face a challenging economic environment right now and likely will continue to for the next several years. Plaid is committed to unlocking financial freedom for everyone and that includes SMEs. That’s why we’re partnering with Codat, an API for business accounting, POS, and commerce data, to help SMEs access the tools they need to manage their finances effectively. 

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

Plaid’s API supplies user-permissioned banking data, which means transactions data comes from a trusted bank source, while Codat’s API provides access to contextual accounting, POS, and commerce data. Accessing data from these two sources allows lenders to form a more complete and verifiable understanding of a business customer, beyond what’s available from credit reference agencies, via one simple API integration. 

Furthermore, access to these combined data sources also can help lenders fight fraud. Codat’s API offers deep insight into a business’s financial picture. When paired with Plaid-supplied 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 can have even more added benefits. For example, it can enable lenders to flag key indicators early like increasing creditor pressure or concentration risk that Open Banking data alone may not reveal. As a result, lenders 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 help address these issues. If you’re interested in exploring how Plaid and Codat could improve your SME underwriting, reach out to our team.