Overcoming the UK's SME funding gap

Access to funding, overdrafts and lines of credit is the lifeblood of growth for any small and medium-sized enterprise (SME). But new research by Allica Bank has shown that there's an SME funding gap of up to £65billion in the UK – potentially choking SME growth.

Allica’s research is a wake up call for UK small and medium businesses, making it clear that funding is more difficult to access for the average SME.

Major findings from the research show that:

1. There’s a multi-generational shift in bank lending, with a gap of up to £65bn in SME lending emerging over the last 25 years. The shortfall is especially prominent in ‘productive credit’ that’s vital to boost investment, productivity and growth.

2. There has been a particular collapse in overdraft lending to small businesses, which dropped from £18bn in 2000 to just £2.7bn in 2024

3. The UK has the lowest business investment rate in the G7, with small businesses investing at only a third of the level of corporate businesses and the lowest level of SME loan application rates recorded in the OECD.

The impact of a drop in available funding

A nationwide funding gap is cause for concern, not just for large corporate organisations and government think tanks. Simple, straightforward access to funding is what keeps your cash runway on track, and provides the capital to grow your small business.

If loans, overdrafts and business credit dry up, this could have a significant impact on your ability to fund the next stage of your business strategy.Four ways to overcome the funding gap

So, with the outlook for SME funding looking less than rosy, what can your small business do to improve the chances of accessing the funding you need?

Here are four ideas for finding the required capital

1. Improve your business credit score:

Having a strong business credit score signals that you’re a viable business to lend to. Pay your suppliers on time, keep your credit utilisation ratio low and make sure you’re keeping accurate financial records. This can all help to strengthen your credit profile and access to funding.

2. Explore alternative lenders and fintech platforms:

Don't rely solely on traditional banks. The non-bank lending sector, including specialist business finance providers and fintech companies, offers flexible and often quicker access to capital. Products like asset finance and invoice finance can be great routes to additional funding.

3. Check out government-backed funding:

The government-backed Growth Guarantee Scheme allows eligible businesses to borrow up to £2m in loans. The scheme is open to smaller businesses with a turnover of up to £45m (on a group basis, where part of a group).

4. Enhance your business plan and financial projections:

A clear, well-researched business plan is an excellent tool when approaching lenders. A detailed plan and in-depth financial forecasts help to show your viability as a business, and your ability to cover the repayments of any offered loan.