In the aftermath of the financial crisis, traditional banks in the UK have increasingly retreated from SME lending. Heightened regulatory requirements, particularly the need to maintain higher Core Equity Tier 1 (CET1) ratios under Basel III, have compelled banks to prioritize lower-risk, asset-backed lending. This shift has left many SMEs—especially those in service-oriented sectors lacking tangible collateral—underserved. In today’s FT, Rick Haythornwaite, chair of NatWest explained that ‘the pendulum (of regulations) have been pulled over to the point where there is just excessive duplication, inefficiency and things that are now really unnecessary?’. Much of the scope surrounds the UK mortgage market but what about SME Lending?
Current State of SME Lending
Recent data underscores the challenges faced by SMEs:
In 2024, gross lending to SMEs rose by 13% year-on-year to over £16 billion.
Despite this increase, net lending remained negative at approximately minus £7 billion, indicating that repayments outpaced new borrowing.
A study by Allica Bank highlighted a £90 billion shortfall in bank lending to SMEs, attributing this gap to a market shift towards low-risk, property-backed loans, which often don't align with the needs of modern, service-oriented SMEs.
Rise of Alternative Lenders
As traditional banks pull back, alternative lenders have stepped in to fill the void:
Challenger banks and non-bank lenders now account for 60% of SME lending, surpassing the combined share of the five largest banks.
Fintech platforms like Iwoca and Fleximize have leveraged technology to offer rapid, unsecured loans tailored to SMEs, with Iwoca providing credit lines up to £200,000 and business loans up to £500,000.
Asset-based lenders such as Capify and Simply Asset Finance offer financing solutions secured against assets like invoices, inventory, and equipment, catering to SMEs with tangible assets.
Sector-Specific Lending Trends
Different sectors have experienced varying levels of access to finance:
In 2024, sectors like agriculture, real estate, health, and recreation saw notable increases in new lending, while manufacturing, transport, and storage experienced declines.
The British Business Bank has been directed to focus its lending efforts on high-growth sectors, including creative industries and early-stage technology businesses, aiming to stimulate innovation and sustainable growth.
Initiatives like the UK Games Fund provide grants to support early-stage game development, addressing funding gaps in the creative sector.
Finstock Capital's Position in Bridge Lending
Amid this evolving landscape, Finstock Capital distinguishes itself in the bridge lending space:
Tailored Solutions: Unlike many bridge lenders who focus on standardised, property-backed transactions, Finstock Capital specialises in bespoke, time-sensitive lending solutions designed specifically for SMEs.
Agility and Speed: Finstock Capital offers rapid decision-making and funding, crucial for SMEs navigating complex financial situations or requiring interim financing.
Deep Sector Understanding: With a keen insight into the unique challenges faced by SMEs, Finstock Capital structures innovative deals that align with the real-world requirements of its clients.
In a market where traditional banks have stepped back, and alternative lenders are filling specific niches, Finstock Capital provides a flexible, responsive, and SME-focused approach to bridge lending, addressing the nuanced needs of businesses seeking more than just capital—they seek a partner who understands the pace and complexity of their world.