Cash flow, confidence, and the case for change

Making SME finance work for the businesses it’s meant to serve.

The UK has one of the most diverse and digitally advanced SME lending ecosystems in the world. Challenger banks now account for 60% of SME lending, government-backed schemes have helped unlock over £20 billion in funding¹, and fintech innovation has made applying for finance faster and more accessible than ever. 

And yet - SME borrowing remains stubbornly low. 

Only 3.5% of UK SMEs applied for new or renewed external finance last year², compared to over 20% in mainland Europe³. 

So what’s stopping SMEs from accessing the capital they need to grow?

It’s not a shortage of options. It’s a problem of confidence, trust, and relevance - and that needs to change.

The State of SME Finance in the UK in 2025

In March of this year, the UK government issued a clear call to action: help us understand what’s holding SMEs back from borrowing - and what we can do to fix it. 

Their focus is clear: ensuring SMEs have access to the right type of finance at the right time in their business journey. Because SMEs are the backbone of the UK economy and engine of economic growth - creating jobs, fueling innovation, and supporting communities across the UK.

We’ve made progress - but we’re not there yet.

The UK lending landscape has come a long way, as of 2024:

• 60%⁴ of SME lending is now provided by non-traditional lenders, like challenger banks and alternative lenders, signaling that the market is no longer dominated by the big high street banks. 
• Open Banking, digitalisation, and process automation have made finance applications faster and smarter with easy applications and risk assessments.
• Government initiatives have helped over 206,000 UK SMEs access funding in the last decade

Today, the lending market is more resilient, competitive, and inclusive than it was post-financial crisis, when 90% of SME lending came from just 4 high-street banks. 

Despite this progress, the core problem remains: access to finance has expanded, but uptake hasn’t. The numbers speak for themselves: 

• 50%⁵ of businesses that invest in themselves still rely on cash
• Only 34%⁶ of SMEs feel confident their bank will approve their lending application
• 86%⁷ of SMEs have no intention of borrowing external capital at all

Too many SMEs are stuck in the cycle of risk-aversion and discouragement, holding back growth that could fuel the wider economy. 

What’s really holding SMEs back?

There is no shortage of funding options, but friction, perception, and risk aversion continue to block widespread adoption of lending.

Supply-side challenges:

• Low approval rates: especially for first-time applicants, newer businesses, and those without physical collateral
• Borrowing is expensive: especially for smaller lenders due to risk based pricing and high cost of capital

• Traditional lending products: they don’t always fit the needs of modern businesses

Demand-side challenges:

• Risk aversion: 60% of SMEs prefer to build cash reserves rather than invest in growth
• Perception problems: many view lending and finance as complicated, expensive, or inaccessible
• Discouragement: past rejections and slow, complex application processes deter future attempts and leave business owners feeling excluded
• Financial literacy gap

The barriers are cultural. While many UK businesses want to grow and are willing to take risks, they hesitate to apply for external finance to make it happen.

From intention to action

The UK government has made it clear that growth is its number one mission, determined to “help the nation’s 5.5 million small businesses thrive⁸” through five focus areas to unlock SME finance

1. The lending market
2. Demand for finance
3. Alternative finance models
4. Application and approval processes
5. Access for underserved businesses

What needs to change?

• Smarter credit assessment: open banking and real-time data can help lenders make faster, fairer decisions

• Reframing lending models: move away from outdated reliance on personal guarantees and heavy collateral requirements

• Support for alternative lenders: non-bank lenders, brokers, and embedded finance partners are critical to bridge the funding gap, with faster decisions, clearer terms, and funding designed for the realities of modern business

• Built-in financial education: financial literacy and advice should be accessible and embedded in digital finance tools

• Simplifying access: faster approvals, fewer barriers, and funding that works for SMEs

Our take: Finance should power growth, not stall it

By eliminating friction and enabling real-time decision-making, fintech is accelerating growth cycles by making capital not just more accessible, but also more affordable for SMEs.

At Bourn, we believe SMEs shouldn’t have to fight for finance. They need financial tools built for the way they operate today.

That’s why we built the Flexible Trade Account (FTA). By connecting directly to a business’ bank account and accounting system, the FTA unlocks real-time access to the capital tied up in sales - making finance flexible and accessible for modern SMEs.

When finance is built for the way modern businesses actually operate, more SMEs borrow and invest in the future. And when they do, the UK economy grows with them.