Why Are High-Opportunity Small Businesses Not Getting Support From Traditional Lenders in 2025?

If you’re a Commercial Finance broker struggling to obtain funds from traditional lenders for your clients, you’re not alone.

Between 2010 and 2024, the business population increased by 1.0 million (+23%) and now accounts for about half of the turnover in the UK private sector. These figures may lead you to believe that business is booming for UK SMEs… 

However, many promising businesses in the UK struggle to access funds through traditional channels. They have everything that a lender would look for on paper: strong growth potential, healthy revenue and a good product-market fit, but it still doesn’t seem to be enough to prove to lenders they are a strong investment.

As a broker, it’s important to be aware of the issues small business owners are facing and learn how you can step in to provide alternative funding solutions.

So, why are banks and traditional lenders not supporting these businesses?

The State of Traditional Lending in 2025

Traditional lenders have been slowly falling out of favour with small business owners in the UK for the past few years – most of this shift can be seen as down to the increasingly difficult operating environment for SMEs.

Since the pandemic, half a million small businesses have closed, and a large proportion of these SMEs have found it harder to do business as a result. This is largely due to the rising cost of living, limited government support, and wider global issues.

At a time when small businesses are turning to outside funding more than ever, traditional lenders haven’t been there to support. In fact, 83% of brokers say high street banks have limited SME funding and half of small businesses have a negative opinion of major banks. 

It’s not just an opinion either; the success rates of SME bank loan applications have dropped from 80% in 2018 to around 50% in just five years. So, it’s safe to say, the state of traditional lending in 2025 isn’t looking great – which highlights a big opportunity to find other ways of supporting your clients, outside of traditional bank financing.

Why Are High-Opportunity SMEs Overlooked?

Despite the less-than-favourable lending environment, you would think that a profitable, high-opportunity business wouldn’t have a problem accessing outside investment. However, it seems that the lack of investment extends to businesses that seem healthy on paper.

If you have a client that’s worried about obtaining funds from traditional banks despite having a growing business, here are some of the factors to discuss with them: 

1. Heightened Risk Aversion

Following years of economic turbulence, traditional lenders have become much more risk-averse than they were pre-2020. In a recent report, a £90 billion ‘lending gap’ was identified, which has stalled the progress of many SMEs. 

The cause of this gap? Bank lending to SMEs is falling below historic trends as traditional lenders focus on low-risk, property-backed lending. They particularly highlighted service-based businesses as ones that have been unable to access much-needed funds.

Although the cautious approach is understandable considering the wider global economic environment, it disproportionately penalises start-ups and growth-stage businesses that rely on external finance to boost their operations. Businesses with a limited trading history or unconventional business models may seem too ‘risky’ to traditional lenders, leaving many high-opportunity SMEs with limited access to finance.

2.Outdated Application Criteria

Most high street banks and lenders still rely on traditional lending models that aren’t up to date with the current business landscape, which usually works in favour of asset-heavy, established companies rather than start-ups.

The underwriting process of most banks often requires historic or current financials, rigid credit scores, and quite often, secured charges or a full legal charge. This isn’t always something that works for new businesses that are digital-first or asset-light. It often means that these SMEs are turned away from a loan before they’ve even been given a solid chance.

For many SMEs, their business is thriving, but they fail to meet outdated lending benchmarks set by traditional lenders that ignore many of the important forward-looking metrics that make high-opportunity SMEs a potentially sound investment.

3. Focus on ‘Safe’ Industries and Areas

Take a look at any lender’s history and you’ll probably find that most of their investments are centred in ‘safe’ industries within major urban centres like London. The South East of England and London have the highest density of private businesses, together making up 34% of the UK business population. Because of this, they receive the largest proportion of funds.

Historically, business has been centred around the Capital and South, which has made it even more difficult for businesses outside of these areas to access funding. However, schemes like the Regional Investment Zones have been looking to change that. In an effort to allocate funds equally across the country, several ‘Investment Zones’ in the Midlands and North of England have been set up and provided with £160 million over 10 years.

It’s also something that we are focusing on at 365 Finance. Just recently, we reported unprecedented demand for SME funding in the North West, and we have significantly increased the number of advances we approve in the area.

While traditional lenders may still ignore areas outside of London and the South, this has created a large gap for alternative lenders to meet the needs of the country’s SMEs.

What Are The Alternatives For Small Businesses?

Traditional lenders have been letting small businesses down for some time now, so it’s important that, as brokers, you’re there to support your clients and advise them on alternative solutions. 

One particularly popular solution among brokers is revenue-based finance. For your clients it means repayments that mirror the unique cycle of small businesses, access to the funds they need and fair eligibility criteria.

It’s a model that works perfectly for small, seasonal businesses that may not have the consistent cash flow that would impress a traditional lender, but still can prove its profitability potential.

For brokers working with 365 Finance, it means excellent commission benefits, an easy referral process and fast turnaround times. By working with us, you’re able to provide your clients with a superior service and improve your reputation.

Last year, we worked with more than 250 brokers across the country who brought in 60% of our deals. As a broker-focussed business, we are always looking to work with new brokers and deepen the relationship with our current partners.

Final Thoughts

Despite SMEs being a crucial part of our economy, traditional lenders seem to have been turning their backs on them in recent years. 

There are many reasons why this could be: heightened risk aversion, outdated processes and an overreliance on things like credit scores and underwriting criteria. With all of these factors combined, it’s easy to see why SMEs are turning their backs on traditional lenders and looking towards alternative financing.

Although it may seem like a disadvantage, it’s created a big opportunity for you as a broker to offer alternative solutions. By offering solutions like revenue-based finance, you can help keep your clients operating successfully and boost your commission.

If you’d like to find out more about how you can help your small business clients fund their business without the support of traditional lenders in 2025, get in touch with a member of our team today.

At 365 Finance, we provide revenue-based funding of £10,000 to £500,000 in capital so your customers can thrive all year round. We collaborate with thousands of UK brokerages, providing unsecured finance solutions to small businesses – and market-beating commissions for you as an introducer.

To find out more, please contact a member of our partnerships team or head to our website.