The European Commission is proposing that banks be required to offer to other lenders any SME loan applications that they decline. The Commission cites the UK's referral scheme, which launched in 2016. It has three intermediary referral platforms and facilitated £56m in loans to 2,500 small businesses by Q3 2020. But the Commission found this to be too costly for participants and instead favours either a centralised European Single Access Point (ESAP) with voluntary access for SMEs (as well as listed companies under a separate capital markets initiative); or an 'open finance' data sharing model, whereby banks could make declined SMEs' data available in standard formats directly to alternative lenders with SMEs' consent.

How would an ESAP work?

The Commission has already proposed an ESAP for listed company borrowing in the capital markets, but participation for SMEs and lenders to that sector would be voluntary. 

On being declined, the SME could approve the bank uploading a set of financial information in machine-readable form to the ESAP, free of charge. This could also be done by a 'collection body'. Funding providers could browse through standardised information on ESAP for free. Some data fields would be open, with others to be revealed by the SME when contacted.

However, information would likely be only fully comparable across SMEs of the same Member State, as generally accepted accounting principles (GAAPs) are not harmonised across the EU.

Would an ESAP for SMEs be viable?

An ESAP is considered less costly for SMEs, banks and the relevant supervisor(s) than either the UK-style intermediary referral scheme or banks responding to declined SME borrowers with a standardised information template to help the SMEs approach alternative finance providers more effectively. 

However, the Commission's research suggests there would still be only limited take-up for a dedicated ESAP scheme for SMEs, mainly due to SME concerns about publishing their financial information so openly. Therefore, the Commission proposes to wait and see whether the capital markets ESAP for listed companies develops, in which case, it would propose adding a voluntary SME section. 

Is there another alternative to an ESAP?

In parallel, the Commission suggests that it would be worthwhile exploring the possibility of a permissioned “open finance” referral model (based on 'open banking' access to payment account information under PSD2), whereby banks and specified funding providers could make SMEs' data available in standardised machine readable formats directly to authorised funding providers with SMEs' consent.  

I suspect that this 'open finance' approach may prove more fertile than an ESAP.