The UK small business lending market is in an interesting and evolving place right now, shaped by both economic pressures and new tech-driven opportunities. Here’s a breakdown of what’s next and where things are heading:
Market Trends and Directions
1. Alternative Finance Growth
- Non-bank lenders (like Funding Circle, Iwoca, and Starling Bank) are continuing to gain ground.
- Expect more embedded finance solutions — lending integrated directly into business platforms like e-commerce or accounting tools.
2. AI and Data-Driven Underwriting
- Lenders are increasingly using AI and open banking data for real-time credit scoring.
- This helps serve “thin-file” businesses that might be overlooked by traditional banks.
3. Green Lending Initiatives
- ESG-conscious lending is rising, with incentives for SMEs investing in sustainability.
- Look out for government schemes or bank products that reward low-carbon transitions.
4. Interest Rate Sensitivity
- As rates have stabilized but remain elevated, demand is shifting toward more flexible and short-term products.
- Expect more hybrid loan structures — part fixed, part variable — to hedge against rate changes.
5. Government Support and Regulation
- The British Business Bank and Recovery Loan Scheme (RLS) remain active levers.
- Post-COVID, regulators are also keeping a closer eye on borrower protections and financial resilience.
What to Watch For
- Fintech M&A: Smaller lenders or platforms may get snapped up by larger players or traditional banks.
- Open Finance regulation: Greater access to SME financial data could further streamline lending.
- BNPL for business: Buy Now Pay Later isn’t just for consumers anymore. SME-focused BNPL offerings are gaining traction, especially in B2B marketplaces.
Opportunities Ahead
- Sector-specific lending (e.g., hospitality, construction) tailored with unique risk models.
- Invoice and revenue-based financing models will continue to grow.
- More collaborations between banks and fintechs, especially for underserved SMEs in rural or niche markets.
Pat McCreesh
Founder
www.the-growth-hub.com
pm@the-growth-hub.com