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Recent sentiment shows that SMEs are feeling more optimistic about their prospects in 2025.
More than eight in ten (81%) UK small businesses are focusing on new initiatives to boost growth in 2025, and 48% are looking to lenders to help fund that expansion.
Other SME’s have alternative motivations for utilising finance this year - whether it be for new equipment, invoice finance, or to help them manage overheads as a result of the rise in employer National Insurance contributions.
Whatever the reason, more SMEs choosing to utilise finance in 2025 presents a huge opportunity for the UK’s financial institutions (FIs). To give you an idea of just how big – it’s predicted that by 2030 SMEs will require finance to the tune of £70 billion+.
But there’s a caveat. To take advantage of this opportunity with SMEs, and capture a slice of this forecast growth, FIs need to adopt more innovative lending strategies, powered by technology.
The current state of SME lending
SMEs represent over 99% of all businesses in the UK – from trades to tech startups they are the hot bed of innovation and talent fuelling the economy. And yet, despite their vital importance, they have consistently faced challenges when it comes to accessing suitable funding options from big banks and lenders.
Traditionally SMEs have not been viewed as the ideal lending customers. This has led to a SME finance gap estimated to be over £22 billion in the UK alone.
Several factors impact the ability of banks, neo banks, fintechs and other financial service providers to offer business loans and alternative financing solutions to their SME clients:
- Lack of reliable information – FI’s can struggle to gain accurate data in terms of financial records, statements and accounts
- High risk – SMEs have traditionally been perceived to be higher risk borrowing customers, given their vulnerability to economic and market fluctuations
- Unattractive costs – SMEs borrow smaller amounts but onboarding them takes about the same time and costs the same amount of money as their big loan enterprise peers.
- Regulatory constraints – Capital adequacy requirements, KYC/KYB, AML and other financial regulations makes compliance and risk management processes burdensome, and therefore lending to SMEs less attractive
- Lack of credit history – SMEs can lack robust credit history making them harder to evaluate
- SMEs themselves can be a roadblock – They may not be fully aware of the finance options available to them and find the process of applying for funding difficult, putting even more pressure on FIs to fill the gaps in terms of risk and compliance
How FI’s must respond to SME lending needs
As we look ahead to 2025 and beyond, SMEs continue to be a driving force in the UK economy.
Gone are the days of one-size fits all approach. SME’s increasingly demand tailored financial products – industry-specific loans, revenue-based financing, solutions designed to drive growth.
They also demand greater levels of personalisation - deeper understanding, contextualised advice and the right support at the right time for the range of challenges and opportunities they face.
The key with responding to the needs of SMEs is balancing advances in tech and data science with a strong desire to retain personal engagements and a trusted advisor-style approach – thereby satisfying both customer and regulatory needs, whilst reducing risk and cost, and driving the efficiency gains necessary to make lending to SMEs a more profitable business.
Data is king here. In fact, 78% of SME’s believe that lenders need better quality and depth of data.
How data can help solve each SME lending challenge
Access to rich company data via a single orchestration platform can help FI’s overcome each of the SME lending challenges mentioned:
- Challenge 1 - Lack of reliable information: Credit scores, Delphi scores, payment data, CCJ history, shareholder data – surfaced, matched and verified to deliver a 360-degree view of the SME business
- Challenge 2 - High-risk: Easily identify individual SME risks with advanced KYC/KYB and AML data - credit risks, FCA authorisations, directorship and shareholder information, CCJs, cash at bank decreases, and more
- Challenge 3 - Unattractive costs: Save time, lower costs, and free your resources for high-value activities by surfacing actionable insights from multiple data sources through a single platform, to pre-populate forms and accelerate onboarding processes. Allows FI’s to onboard more SME customers in less time, without compromising thoroughness or compliance.
- Challenge 4 - Regulatory constraints: Overcome challenges when onboarding SME customers in relation to strict KYC and KYB regulations, extensive documentation requirements, and the need to assess creditworthiness while meeting evolving customer expectations. Automate the entire end-to-end SME onboarding process including KYC/KYB checks, UBO and director identification, AML and fraud screening, credit worthiness and document verification checks.
- Challenge 5 - Lack of credit history: Access credit history data from a range of sources via one plug-in, including credit reports, credit scores, and other financial information to perform best practices for creditworthiness evaluation and financial health.
- Challenge 6 - SMEs themselves can be a roadblock: With more detailed and comprehensive customer information, FI’s can deliver better advice to SMEs, matching products with need.
The benefits:
- Optimise time to funding - cut onboarding times from weeks to minutes
- Reduce risk - spot issues and act on opportunities faster
- Minimise cost - Remove friction and enhance the operational efficiency of credit practices
- Accelerate revenue growth – serve SMEs successfully and cost-effectively at scale
- Win and retain more SME customers - Deliver more commercially-beneficial outcomes
Grasp the SME lending opportunity in 2025 with FullCircl
FullCircl offers a single data orchestration platform to help you overcome all SME lending challenges and provide businesses with the funding they need to grow.
- Acquire more SMEs - actionable insights, enabling personalised SME lending strategies that boost acquisition, customer loyalty
- Onboard SMEs faster - end-to-end SME onboarding incorporating robust KYB and KYC procedures, thorough people checks, and effortless compliance.
- Retain SME business – Gain daily insights into customer behaviour and industry trends to continuously tailor your approach, meet unique and evolving needs, provide a personalised touch that fosters strong connections.
To learn more about how FullCircl can transform your approach to SME lending and help you capture a share of this £70 billion funding opportunity, contact us today.
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