The UK SME lending market has changed significantly, but the language around it has not. Providers once labelled “alternative finance” are now a core source of funding for many businesses, while high-street banks are increasingly struggling to meet the speed, flexibility and service modern SMEs need. As alternative lenders account for a growing share of SME funding, it may be time to rethink which part of the market is truly “alternative”.
Read the full article on Elite Business Magazine: "Is it time to start calling high-street banks alternative finance?"
For years, financial institutions and solutions, like challenger banks, fintech lenders, and specialist finance providers, have been called “alternative finance”. This may need to change as they are often not an alternative anymore. For many SMEs across the UK, traditional high-street banks have become the alternative, not the norm. Alternative lenders are providing more funding to SMEs than ever before, making up 60 percent of all lending for SMEs in 2024.
SMEs are fast moving entities in a digital-first economy. Many high-street banks implement a three-month loan approval process which is much longer than many SMEs would prefer. In general, many banks are not able to structurally support businesses as they were able to. Their legacy systems, risk-averse cultures, and regulatory constraints have created institutions far better suited to processing mortgages than understanding the nuanced needs of growing businesses.
Alternative finance institutions and providers aim to evolve and create new products to suit modern business models. Revenue-based and merchant finance providers like Juice or 365 Finance can assess a company’s trading history through real-time data integration, making funding decisions in hours or days rather than months. Asset-based lenders, venture debt and private credit providers are recognising that future potential often differs from past performance, supporting potential future unicorns and high-growth businesses long before they become the darlings of the high street banks.
High-street banks face increasingly stringent capital requirements, while many alternative finance providers operate under more flexible frameworks that allow them to focus on understanding and serving their customers’ needs. Additionally, Alternative finance providers often demonstrate superior customer service, offering dedicated relationship management and sector expertise that has largely disappeared from high-street banking. They understand that SMEs are fundamentally different entities with unique challenges.
This shift has profound implications for how we think about financial inclusion and economic growth. If traditional banks no longer serve as the backbone, maybe they shouldn’t be the benchmark. Perhaps it is time to start calling high-street banks “alternative finance”. Not out of spite, but because language shapes perception, and perception drives behaviour.