Potential Reasons Why Traditional Banks Might Not Provide the Optimal Financing Solution for Small Businesses
Struggling to finance your UK small biz? You might wanna think twice about heading to your local bank. Recent meetings with bank execs revealed Government worries about the tightfisted ways of high street banks, with an alarming decrease in SME loan approvals.
Back in the day, over 70% of UK banks' SME loan requests were getting the green light, but things have taken a turn for the worse – barely half of those applications are making the cut now. Despite a 13% boost in SME lending in 2022, according to UK Finance, it's still less than pre-pandemic levels.
But fear not! As the banks are taking a step back, a horde of progressive finance upstarts has sprung up to fill the gap. From fintech start-ups to competitive challenger banks, these newcomers are shaking things up in the financial sector.
These fintech lenders currently account for roughly 60% of loans to UK SMEs – way up from just 10% in 2008! Examples of these game-changers include Juice, a lender that specializes in providing finance to e-commerce businesses, and GoCardless, which partners with Pipe to analyze SMEs' transaction data for credit decisions.
Juice's innovative technology allows it to integrate directly with SMEs' financial and marketing systems for access to essential data. Their algorithms then evaluate this data to determine the creditworthiness of an SME, how much to loan, and at what rate.
"Many small businesses have grown disgruntled with traditional banks' convoluted loan process," explains Katherine Chan, Juice's founder and CEO. "We offer quicker, more straightforward loan options with access to more capital because of our data-driven approach."
Investors such as Aern Capital and Falco Capital have backed Juice, allowing it to build a $133 million (£100 million) loan portfolio by 2028, supplemented by a $33 million (£25 million) credit line from Paragon Bank. They aim to provide support to over 100 UK SMEs that may have been rejected by their local bank.
The UK fintech market is booming with innovation, especially in the open banking sector. Allica Bank is an example of a nimble player taking advantage of open banking's opportunities. Their recent partnership with Yapily enables customers to quickly top-up accounts and provides added security benefits.
Other players like iwoca, which started as an eBay lender and recently raised €100 million ($109 million) to expand in Germany, prove that there's no shortage of competition in the SME lending market.
Faced with traditional banks' lack of SME support, more forward-thinking options are popping up, offering greater flexibility and faster loan processing. So if you're an SME looking for financing, consider these innovative newcomers as viable alternatives to the old-school bank.
- High street banks in the UK have been criticized for their tightfisted approach towards SME loans, with an alarming decrease in loan approvals from over 70% to barely half.
- In response to this gap left by traditional banks, a wave of progressive finance upstarts, such as Juice and GoCardless, have emerged, accounting for roughly 60% of loans to UK SMEs.
- Juice, a fintech lender specializing in e-commerce businesses, uses innovative technology to integrate with SMEs' financial and marketing systems, offering quicker, more straightforward loan options and access to more capital.
- Investors like Aern Capital and Falco Capital have backed Juice, allowing it to build a significant loan portfolio and provide support to over 100 UK SMEs that may have been rejected by their local bank.
