Are you a small or medium business owner in the UK? Your business helps make our country work. Together, UK small businesses give jobs to over 16 million people and make £2.3 trillion each year. But there’s a problem – lots of these businesses can’t get enough money to grow. The Bank of England tells us there’s a £22 billion gap between what these businesses need and what banks will give them – and this problem affects all kinds of businesses.
Understanding the Funding Gap
This funding gap is more than just a big number – it means many business owners can’t make their business bigger, get new equipment, or pay for everyday things they need. Regular banks, which handle 85% of small business bank accounts, are being extra careful about lending money. They take too long to say yes or no, and their rules are so strict that they turn down almost half of all SMEs who ask for loans.
So why is this happening? Old-style banking hasn’t changed as fast as modern business has. While small businesses now use lots of digital tools to run their companies, many banks still use old ways to check if a business is doing well. These old methods miss many important things about how healthy and promising a business really is.
The Digital Revolution in Business Lending
The good news is that the lending landscape is changing fast, and new solutions are emerging to bridge this gap. Financial technology companies are revolutionising the way businesses access funding with some remarkable improvements:
- Application processing times reduced from weeks to minutes
- Operating costs were cut by more than half
- Risk assessment accuracy improved by 40%
- Customer satisfaction increased by 50%
These are not incremental improvements but a sea change in companies’ access to capital. What’s the big difference? Data-informed decision-making and real-time financial assessment.
New Ways to Access Funding
Modern SMEs have more options today than ever to access funding, thanks to a range of innovative lending solutions that move beyond the traditional term loan.
Revenue-Based Financing
This flexible option allows you to repay based on your monthly revenue, typically advancing 3-8% of your monthly turnover. With approval rates 85% higher than traditional term loans, it’s becoming an increasingly popular choice for businesses with steady revenue streams.
Supply Chain Finance
This solution helps businesses optimise their working capital by paying suppliers faster while extending their own payment terms. Companies using supply chain finance report 76% faster supplier payments and 45% improved working capital efficiency.
Invoice Finance
Modern invoice financing platforms are able to provide same-day funding against your unpaid invoices, generally advancing 80-90% of the invoice value. This makes it a very practical solution to manage cash flow with automatic payment matching and fast setup times.
Making Your Business “Funding-Ready”
Evidence shows that digitally prepared businesses are 70% more likely to secure funding and receive decisions 80% faster than those using traditional methods. Position for success in the following ways:
Go Digital with Financial Management
- Move to cloud-based accounting software
- Keep financial records up-to-date
- Ensure clean, well-categorised transaction data
Know Your Data
- Regular account reconciliation
- Timely invoice management
- Detailed transaction categorisation
These practices might seem like additional administrative work, but they can reduce your borrowing costs by 1-2 percentage points—a significant saving over the life of a loan.
Making the Right Choice: Navigating Modern Funding Options
Today’s SMEs need to think strategically when it comes to choosing the right funding solution. The most financially successful small businesses nurture relationships with multiple lenders and match different types of finance to specific needs. This portfolio approach to funding means you have options when opportunities—or challenges—arise.
Consider your funding needs carefully. If you need money for daily running costs, look at invoice finance or revolving credit – these let you borrow and repay as you go. However, for buying big equipment, asset finance or regular bank loans might work better. The important thing is knowing that each type of funding works best for different needs. Pick the wrong type, and you could end up paying more than you need to.
The Power of Real-Time Financial Data
A big change in business lending is something called Open Banking, which is growing into Open Finance. This means lenders can now see exactly how your business is doing – they can watch your money flow in and out and see how you handle payments, all as it happens. To SMEs, this means faster decisions and more accurate credit assessments—early adopters of Open Finance principles see 40% more accurate risk assessments and significantly reduced fraud attempts.
But what does this mean for your business? In connecting your financial data via secure APIs, you’re not just making it easier to access funding; you may also be qualifying for better terms. Lenders can see the real-time performance of your business rather than having to rely on historical statements, leading to more favourable lending decisions for healthy businesses.
Building Strong Banking Relationships in the Digital Age
While technology is upending much about lending, relationships still matter—only increasingly, those relationships are digital. Modern lending platforms offer relationship managers supported by AI-driven insight to provide more proactive and informed support than ever before.
Take full advantage of such strengthened relationships. Regular interaction—involving different types of providers, either traditional banks or alternative providers—allows you always to be informed about all alternatives and have the possibility to grasp funding opportunities when business timing is right. For many platforms these days, pre-approved limits against the continuous performance of your business translate into being able to click for extra funds whenever an opportunity calls.
Planning for Future Growth
In the future, SME funding will be even more diverse. We will see “smart contracts” powered by blockchain technology, which could handle up to 35% of SME lending agreements by 2026. Such self-executing contracts could reduce administrative costs considerably and almost eliminate payment delays.
Consider how your business can position itself for these innovations:
Strengthen Your Digital Presence
A strong digital presence is no longer a question of mere marketing; it is also highly relevant for funding. Through alternative data sources, lenders take into consideration online reviews, website traffic, and social media presence to determine business health. Maintaining a professional online presence may affect your ability to access funding.
Invest in Financial Technology
Using the right mix of financial software can change how you handle your business money completely. Put simply, when you use online accounting programs, automatic bill sending, and tools that track your money as it moves in and out, you not only run your business better – you also look better to people who might lend you money.
The Road Ahead
This funding gap is a challenge as well as an opportunity for UK SMEs. While the gap is wide, the tools and technology to bridge this gap are becoming increasingly accessible. These days, getting a loan depends less on old ways of checking (like past accounts) and more on how well you use digital tools and data to show that you’re good for the money.
Ready to move forward? Start by looking at how you’re funding your business right now. There might be better options out there for you, especially with all the new lending choices available. To help you make the best decision, our Pulse platform brings together all your business numbers in one place. This makes it easier to understand your finances and show lenders why they should invest in your growth.
Want to learn more about how Pulse can help? Get in touch today to begin your journey.
