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T here’ s no question that rising interest rates and tighter lending criteria are making it harder for UK SMEs to access traditional finance. High street banks seem to be more selective than ever, especially when it comes to newer businesses or those in sectors perceived as volatile. That’ s led to a noticeable funding gap, particularly for start-ups and early-stage firms that lack trading history or tangible assets to secure a loan. Where once a solid business plan might have been enough, SMEs are now being asked to provide extensive financial forecasts, personal guarantees and collateral and even then, the answer may still be no.
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REVENUE-BASED FINANCING IS GAINING TRACTION, ESPECIALLY FOR DIGITAL-FIRST OR SERVICE-BASED COMPANIES WITH RECURRING INCOME.
This environment has forced many SMEs to look beyond traditional bank loans, and in doing so, we’ re seeing some genuinely innovative funding models step into the spotlight.
Revenue-based financing is gaining traction, especially for digital-first or service-based companies with recurring income. Rather than fixed repayments, this model ties repayment to a percentage of monthly revenue, offering flexibility that aligns with business performance. It’ s not cheap, but it’ s often more accessible and doesn’ t require security.
We’ re also seeing a rise in peer-to-peer lending platforms and alternative credit providers that use open banking data and realtime business performance metrics to assess creditworthiness. These FinTech lenders are more agile and tech-driven, allowing them to offer decisions in hours rather than weeks. And for businesses with strong communities or B2C propositions, crowdfunding continues to be a powerful tool, not just for raising capital, but also for validating market demand and building brand loyalty.
Asset-based lending is also playing a growing role, with more companies unlocking funding tied to unpaid invoices, equipment or even stock. It’ s a lifeline for firms in cashflow-sensitive industries like manufacturing or logistics, where payment terms can stretch for months.
While we saw government-backed schemes like the British Business Bank’ s Recovery Loan Scheme help soften the blow, as those schemes were phased out, the onus has increasingly been on SMEs to shop around, understand the full cost of credit and explore non-traditional options. It is however worth keeping an eye on replacement schemes and grants, for example, The Growth Guarantee Scheme managed by the British Business Bank which might not be as well-known as its predecessor.
The key takeaway is this: while the funding landscape has undoubtedly become more challenging, it’ s also more diverse than ever. The businesses that thrive will be those that adapt, combining financial resilience with a willingness to embrace new forms of funding that better match today’ s economic realities.
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WHILE THE FUNDING LANDSCAPE HAS UNDOUBTEDLY BECOME MORE CHALLENGING, IT’ S ALSO MORE DIVERSE THAN EVER.
JASON TASSIE, B2B GROWTH STRATEGY EXPERT AND FOUNDER, KNOW YOUR BUSINESS
Intelligent SME. tech
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