Insights

The SME Lending Gap: What it means for your business

Greg Taylor · Posted on: July 1st 2025 · read

If you've struggled to get a loan, an overdraft, or just decent support from your bank, you’re not alone.

New research from Allica Bank shows that small and medium-sized businesses like yours are missing out on up to £90 billion in funding. That’s not just a number; it’s a warning sign.

Let’s break down what’s going on, and how you can make sure you’ve got the right finance facilities for your business.

Why banks aren’t lending like they used to

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Banking & Finance

Allica’s research shows that back in the early 2000s, high-street banks were lending much more to SMEs. Since then, that support has dropped way off. Why?

Banks are playing it safe. They mostly want to lend money only if you can offer property or other hard assets as security.
That’s bad news if you run a service-based, online, or modern business that doesn’t own major assets.
Even overdrafts have dried up - down from 1 in 3 loans in the ‘90s to just 1 in 20 today.

"The result? Many good businesses either can’t grow, have to dip into personal savings, or give up on opportunities because they can’t get funding."

Greg Taylor, Head of Banking & Finance

What needs to change for more businesses to get funded

Based on their research, Allica says we need to:

Fix the rules: Right now, the financial system actually makes it harder for banks to lend to businesses unless there’s a property involved.
Encourage smarter lending: Let banks support businesses that don’t have buildings or land—but do have steady income, real demand, and good plans.
Stop one-size-fits-all thinking: Tech firms, trades, online shops, and service providers need different types of support, not old-school banking rules.

And in the Banking Team at MHA, we’d add one more to this list, which.

Revise and Relaunch: The Government Bank Referral Scheme, so that businesses that get turned down by their bank get referred to professional advisors and intermediaries who can take the time to fully understand the individual circumstances of each business and provide real guidance and funding options to business owners.

Why this matters for you

If your business has:

Been turned down for lending even though you're profitable
Struggled to get an overdraft or line of credit
Put off growing because you couldn’t get funding...

…you're exactly the kind of business that banks and other lenders should be trying to help.

The old banking system wasn’t built for how businesses operate today. But with the help of challenger banks like Allica and others we’re proving that with the right tools, and some smarter thinking - we can close the SME funding gap and get more money flowing to the businesses that drive the economy.

Advisory

Banking & Finance

Review your finance options

Don’t assume the big banks are your only option, and make sure you review what facilities you have are still the most appropriate.

Talk to a professional advisor

Especially those who understand the UK lending market and can give you trusted and tailored advice / funding options for your businesses circumstances.

Watch for policy changes

More awareness means more pressure on regulators to fix broken rules.

As a business owner or part of a management team you work hard. You’re creating jobs, serving your community, and growing the economy. You deserve a finance provider that actually supports you, and thankfully with the experience of the Banking & Finance team at MHA, we can provide professional guidance and support to structure facilities with banks and other lenders that are starting to do just that.