A significant number of UK’s small and medium-sized enterprises (SMEs) started or increased their use of credit in 2024 to support day-to-day operations and fuel growth. Unfortunately, many other businesses struggled to secure approvals from traditional sources, as high-street banks continue to impose tight lending criteria. Approval rates for small business loans at large banks have been low since mid-2022.
In contrast, alternative lenders are rising in popularity as reliable sources of capital. Loan approval rates from these providers have continued to increase as UK SMEs turn to them for working capital while bank lending remains constrained.
Learn why loan approval rates from traditional lenders continue to be low, discover how you can expand your access to credit through alternative lenders, and explore why these funders are able to deliver fast, flexible working capital solutions to businesses under financial pressure or in growth mode.
The narrowing of traditional lending
Ongoing economic uncertainty and weak growth forecasts have led traditional lenders to become more risk-averse. The Bank of England has indicated that GDP growth is expected to remain sluggish, hovering close to 1% in 2025, fueling caution. Add to this high inflation, increased borrowing costs, and rising insolvency rates, and it’s easy to see why UK banks are overly conservative in their lending criteria.
In addition, banks are preparing for changes to regulatory frameworks that are set to take effect in the coming years, including more stringent capital requirements under Basel III reforms. This has resulted in a narrowing of lending opportunities for SMEs that often rely most heavily on access to flexible credit.
Alternative lenders to the rescue
Not all is bleak in the world of finance. For decades, alternative lenders have steadily increased the volume of credit extended to UK businesses, a trend that continues today. The global alternative lending market is projected to grow at a Compound Annual Growth Rate (CAGR) of over 20% throughout the next decade, positioning the sector as a critical resource for SMEs seeking finance beyond traditional banking channels.
As traditional banks remain highly conservative, alternative lenders are stepping up to ease the bottleneck, offering greater access to capital through more flexible and tailored solutions.
Why are alternative lenders gaining ground in a tight credit market?
The growing appeal of alternative lending lies in its fundamental differences from the rigid rules of high-street banks. Key advantages include:
- Deep pools of funding – Backed by investors seeking stronger returns, alternative lenders can approve more applications and provide funds quickly—often within days of receiving a request.
- Innovative credit analysis – Rather than relying solely on traditional credit scores, alternative lenders use technology-driven methods to analyse thousands of data points, uncovering collateral value and financial strengths that banks may overlook. This enables them to support businesses with less-than-perfect credit records or uneven trading performance.
- Fewer restrictive covenants – As banks continue to use restrictions to limit their exposure to the SME sector, alternative lenders typically impose minimal conditions. Business owners retain greater freedom in how funds are used and, depending on the product chosen, may avoid onerous monthly or quarterly reporting requirements.
Decoding alternative lending options
Moving away from rigid, fixed-term business loans, alternative lenders offer a range of finance solutions designed for flexibility:
- Invoice financing: This flexible finance solution helps businesses unlock cash tied up in unpaid invoices without incurring debt. You receive up to 90 % of the invoice value (minus a small fee) within 24 hours. With minimal loan covenants, this funding solution provides the business with heightened control of the facility and how funds are utilized. Providers handle credit management and collections. Once your customer pays the invoice in full to the lender, the remaining balance owed is transferred to you.
- Invoice discounting: Like invoice financing, this funding arrangement enables businesses to unlock the cash tied up in unpaid invoices by receiving up to 90% of the invoice value, typically within 24 hours. The business maintains control over collections, customer relationships and credit control. When your customer pays the invoice the lender sends the remainder owing. Minimal covenants provide flexibility and optimum control of the facility.
- Bad debt protection: Not being able to collect payment for goods or services already supplied can have a serious and detrimental impact on your business. Bad debt protection gives you the confidence of knowing that you will receive payment for invoices due from your customers in the event of non-payment, thus protecting your longer-term cashflow.
Conclusion
In today’s unpredictable financial climate, SMEs must remain agile. Alternative lenders can offer the difference between surviving and thriving by providing flexible solutions designed to unlock working capital quickly.
For SMEs struggling with bank restrictions, the message is clear: think beyond traditional lenders. Alternative lenders are ready to partner with you, offering easier qualification criteria, faster approvals, and tailored funding solutions that support both resilience and growth.
Contact us to increase access to business credit with flexible alternative lending options.
Key Takeaways
- A significant number of SMEs started or increased their use of credit in 2024 to support day-to-day operations and fuel growth.
- Many of these businesses struggle to secure approvals from traditional sources as high-street banks continue to impose tight lending criteria. Alternative lenders are gaining ground, offering higher approval rates, faster turnaround times, and flexible terms.
- Partnering with a alternative lender provider can give SMEs the resources they need to grow, even in uncertain markets.
