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SMEs Are Hesitant To Use Alternative Finance Providers Despite Refusal From Traditional Lenders

Following an uphill battle for businesses across all industries over the last 18 months, the UK is now poised for economic growth in the post-pandemic boom.

Representing 99.8% of Europe’s businesses and accounting for two-thirds of total employment, the SME market – often referred to as the backbone of the UK economy – will be fundamental to this growth. But with more than three quarters (77%) of businesses unable to secure traditional bank financing, the need for alternative finance to fuel their expansion is greater than ever.

Yet research from the law firm, Walker Morris, reveals that although 40% of SMEs have plans to grow over the next 12 months, almost half of these (45%) cite concerns about using alternative finance providers, despite being refused funding by traditional lenders.

The pandemic spurred record lending to SMEs in 2020, hitting £54billion in the first nine months of the year as 1.5 million businesses drew on government-backed loans, but many businesses now require additional finance to enable them to invest in growth.

More than half (51%) of SMEs currently seeking funding will use it to grow through acquisition, with 46% looking to invest in real estate.

This new research demonstrates the scale of the opportunity for alternative lenders as economic recovery gets underway – the UK’s alternative lending market is now worth a record £6.26billion, with the European market doubling last year to over €6.6billion – however, there is clearly more to be done to reassure SMEs that alternative finance is a viable option for them.

The top three barriers for SMEs seeking finance from an alternative lender are:

  1. Concerns over changes in market dynamics and the potential impact on the customer (SME).
  2. Unregulated lending / potential regulatory loopholes.
  3. Higher interest rates / perceived as not competitive against bank lenders.

James Crellin, Director in the Finance Group at Walker Morris, said:

“Alternative finance is arguably the key to helping the economy get back on its feet and grow following the challenges businesses, particularly SMEs, faced during Covid-19. However, it’s undeniable that there are many hurdles SMEs face when it comes to securing funding – and it’s clear that the perceived risks around insecure finance and of regulatory loopholes with alternative finance providers is a huge barrier. These concerns are of course based on SME’s impression of alternative lenders and by no means the reality of alternative finance.

“We know alternative finance is a vast and rapidly growing market, and this is precisely why Walker Morris established its own full-service Alternative Lending Group. Our team of experts is dedicated to helping alternative lenders right across their life cycle.

“We ensure our clients have their house in order across all legal aspects of trading, so their customers can trust their processes too.”

Walker Morris’ Alternative Lending Group delivers full service advice and guidance to alternative finance providers and challenger banks – from set-up and structuring, getting the proper authorisations, sorting commercial contracts and outsourcing, putting in place wholesale and customer-facing funding, implementing new technology, managing compliance, regulatory and IP issues and loan portfolio management.

The firm’s survey of 500 businesses also revealed what SMEs want most from lenders. Surprisingly – whilst innovative digital platforms are desirable – half of the respondents (47%) considered face to face interaction highly important despite the pandemic resulting in a shift to online for many industries.

James continued: “It may sound obvious, but if SME-focused challenger banks and finance providers are able to demonstrate that they offer better products and services than mainstream providers, they have the potential to grow very quickly in a post-covid world. Our team has the skills to get these products to market, providing the expertise, experience and knowledge that finance providers can rely on.”


  • Francis is a journalist and our lead LatAm correspondent, with a BA in Classical Civilization, he has a specialist interest in North and South America.

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