Published by Jessica Weisman-Pitts
Posted on August 25, 2022
4 min readLast updated: February 4, 2026
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By Michael Pierce, Commercial Director, Banking at FintechOS
For any financial institutions that loan money to small- and medium-sized enterprises (SMEs), the message is loud and clear. SMEs can’t get sufficient funds quickly enough to stay in business, so lenders are losing customers.
This is not only bad news for lenders, it’s bad news for the wider economy too. The UK Federation of Small Businesses (FSB) has warned that ‘pulling up the drawbridge’ to UK SMEs will further stifle economic growth. FSB research shows successful finance applications plummeting to the lowest level on record.
The FSB’s is Small Business Index (SBI), a quarterly poll to measure the confidence of approximately 1,200 enterprises with less than 500 employees in the UK. The latest poll shows that both applications for small business loans are down and approvals are at an all-time low.
Furthermore, the latest figures from the Bank of England, published in May 2022, show the annual growth rate of borrowing by SMEs. It fell to -5.3%, the lowest since April 2012 (while large business borrowing grew to its highest rate since June 2020). Neither paints a particularly inspiring picture for SMEs.
SMEs are crying out for funding solutions. As a lender, what can be done to help fix the SME financing gap?
The harsh reality of the SME financing gap
The SBI poll also reveals the SME financing gap is seeing SMEs report significant problems with late payment and supply chain issues. 11% of small firms, or over half-a-million businesses, plan to close, sell or downsize over the next year.
Worryingly, of the finance that is lent, much of it is being used to manage cash flow problems. This cash could be spent on much-needed investment and innovation in technology and staffing. Cash flow issues appear to be fuelled by a growing amount of late payments sweeping through the economy. Nearly two-thirds of SMEs said they were impacted by late payment of invoices over the first quarter of 2022. 22% said the likelihood of late payment is growing.
It’s a critical time for SMEs trying to rebuild after the pandemic and in the face of rising business costs. Research by Novuna Business Finance shows the need to close the SME finance gap has increased on last year. 70% of SMEs, however, said they will have to put growth plans on hold unless they can access funds.
In a report from the fintech smart payments platform, Yolt, a third of SMEs who tried to access finance were rejected last year. They estimate that they lost a total of GBP 3.7 billion in potential funding over the course of 2021. Reasons for rejection included the age of their business, the level of existing business debt, and the lack of sufficient collateral. Of those that were successful, only 20% of SME owners described the process of borrowing as easy. Less than 10% thought the process made effective use of technology.
Closing the SME financing gap via fintech
Clear evidence shows SME growth is held back by a lack of awareness of funding options. Research carried out by Asset manager Boost&Co in its survey of 500 UK business leaders for its 2022 ‘Geared for Growth’ report found that nearly a fifth of business leaders are unaware of the finance options available. The way forward is for financial institutions to use fintech loan application software to speed up time-to-cash for their suppliers and close the SME financing gap.
Some of the most-popular options for finance, as unveiled in a survey of 500 UK SME owners for Bibby Financial Services, are currently: business loans (34%), credit cards (30%), overdrafts (21%) and government loans (21%).
There is huge potential for lenders to increase their customer base by exploiting fintech solutions.
Shaking hands over the SME financing gap
As the FSB figures show, the SME financing gap is a real issue. Yet, by their very nature, SMEs are not at the size that requires full-blown commercial lending products. Neither can they simply use retail banking products.
SMEs are falling through the cracks and are a vast, largely untapped market for financial institutions willing to offer more specialized services. The answer lies in working with fintechs, specifically, one that can allow financial institutions to easily create hyper personalised experiences. This is the type of service SME owners appreciate and it can also provide a better understanding of SMEs’ needs and can be carried out quickly and seamlessly.
If you can innovate and implement some smart fintech solutions, this will go a long way to bridging the financing gap that many SMEs face.
SME financing refers to the funding options available for small and medium-sized enterprises, which are crucial for their growth and operational sustainability.
A loan application is a formal request submitted by an individual or business to a lender for borrowing funds, detailing financial information and purpose.
Fintech, or financial technology, refers to the integration of technology into offerings by financial services companies to improve their use of financial services.
Late payment occurs when a borrower fails to pay back a loan or invoice by the agreed-upon due date, often leading to financial penalties.
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