Open finance is set to reshape small business lending in the UK

Expected in 2025, the Financial Conduct Authority (FCA) is set to publish a landmark Open Finance strategy, with a strong focus on small and medium-sized business (SME) lending use cases. This could signal a major shift in how SMEs access credit, moving beyond traditional models toward real-time, data-driven underwriting.

Here’s what it means, what’s changing, and how business owners can prepare.

What is open finance?

Open Finance builds on the concept of Open Banking by expanding consent-based data sharing to a broader range of financial products. This includes:

• Business lending and credit

• Pensions and savings

• Insurance

• Mortgages

• And eventually, tax and utility payments

The goal is to give SMEs more control over their financial data. With the business's consent, approved providers, such as banks, lenders, and fintech companies, can access richer, real-time financial insights.

Unlike traditional credit assessments that rely on static information like annual accounts, Open Finance supports a more dynamic, behaviour-based approach to lending. This allows providers to make better-informed decisions based on how a business is actually performing.

In April 2024, the Centre for Finance, Innovation and Technology (CFIT) supported by the UK Treasury and the Financial Conduct Authority (FCA), launched a taskforce with the aim to to unlock the full potential of open finance and improve access to credit for SMEs.

A timeline of open finance developments

What’s changing: lender assessments, not credit agencies

To be clear: Open Finance does not change how business credit scores are calculated by credit reference agencies like Experian, Creditsafe, or Equifax. It is a lender’s own risk and decisioning models that are evolving.

Traditionally, most lenders have assessed business loan applications using:

• Business credit scores 

• Filed accounts (up to 18 months old)

• Historical payment performance

• Director history and business sector data

Under an Open Finance model, lenders can supplement, or even replace, these traditional inputs with real-time data from multiple sources, such as:

• Business bank account transactions

• Cashflow patterns and forecasting data

• VAT filings and tax payment history

• Payroll activity and staff costs

• Revenue consistency and spending behaviour

This data-rich environment enables lenders to make more accurate, faster, and fairer decisions, particularly for businesses that lack a long credit or trading history. 

Fintech lenders have already begun to adopt this approach, using Open Banking data to deliver faster, cash flow-led credit decisions. This is especially impactful for younger, fast growing businesses.

CFIT’s pilots indicate that more than 25% of previously declined SME credit applicants could be approved if lenders integrate additional transactional data like cash flow or business performance.

Why does this matter for small businesses?

UK businesses, especially micro and early-stage firms, often face barriers to finance because they don’t yet have a strong credit file or long trading history.

According to CFIT’s Open Finance taskforce, more than 25% of previously rejected SME loan applicants could be approved using alternative data. Their report, Smart Data: improving SME lending to drive economic growth, produced in collaboration with Open Banking Limited, also found that leveraging smart data could significantly support growth for the UK’s sole traders and SMEs.

While not explicitly from CFIT, independent industry research demonstrates an unmet SME credit gap of up to £65 billion in the UK. This figure is frequently cited in policy context relating to the funding shortage that Open Finance could help resolve.

Yet awareness remains a key barrier. Research cited by CFIT and the British Business Bank shows that around 60% of SMEs who don’t seek finance are unaware of what options, including Open Banking and data-sharing, they could access to apply for credit. 

As more lenders adopt Open Finance tools to supplement traditional credit scoring, small businesses that can demonstrate strong cash flow, stable revenue, and good banking behaviour will be better positioned to secure funding and grow.

What are the practical benefits for business owners?

Open Finance is designed to make it easier for small businesses to get the funding they need. Here are some of the key benefits:

• Faster loan decisions
  Lenders can use live financial data to make decisions much quicker, sometimes in minutes instead of days.

• More access to funding
  Even if your business doesn’t have a long credit history, strong cashflow and good financial habits could help you qualify for loans.

• Better rates for healthy businesses
  If your business is doing well right now, lenders may offer lower interest rates or better terms, based on up-to-date banking data.

• Clearer feedback from lenders
  You’ll get more transparent answers about why a loan was approved or declined, based on real financial behaviour, not just credit scores.

What can small business owners do to get ready?

If you want your business to benefit from Open Finance, here are some simple steps you can take:

1. Use accounting tools connected to your business bank account. Software like Xero, QuickBooks, or Tide links to your bank account and shows your cashflow in real time. This makes it easier for lenders to see how your business is doing.

2. Pay attention to your day-to-day financial habits. Lenders may consider how often you go into overdraft, whether you file your VAT on time, if your income is regular or seasonal, and how you manage payroll. These real-life behaviours could have a growing impact on future lending decisions.

3. Ask lenders or brokers if they are evaluating applications using broader (Open Finance) datasets.

4. Explore fintech lenders as many are already using Open Finance to offer quick, cash flow based loans. It’s worth exploring, even just to get familiar with how this approach works.

5. Take control of your data. With Open Finance, you decide who can access your financial information, for how long, and for what purpose. Always review the terms before giving consent, this is your legal right.

In 2025, Open Finance is expected to reshape how UK SMEs are assessed for funding, using richer, real-time financial data to make lending decisions faster and more accurately.

This shift changes both who gets access to finance and how those decisions are made. Instead of relying on outdated or limited financial records, lenders will increasingly use live data, such as cash flow, bank activity, and tax filings, to get a clearer, more up-to-date picture of your business’s performance.

Getting ready now, by making your financial data visible, tracking your performance in real time, and working with lenders who embrace Open Finance, can give your business a clear advantage.

At Capitalise.com, we can connect you with over 130 lenders, helping you secure the right funding at the right time.