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Barriers to lending and how to get around them

Small and medium-sized businesses (SMEs) accounted for 99.9% of the UK economy in 2015, and over half of these businesses intend to grow in 2016. Moreover, the UK is seeing the largest number of high-growth SMEs since the dotcom boom. Yet SMEs continue to face real challenges in accessing business finance. Let’s take a closer look at these barriers to getting a bank loan and how business owners can overcome them.

Access to bank loans

While bank lending for SMEs has improved since the financial crisis of 2007-2008, it continues to be a source of real frustration for small businesses. With the banks continuing to reject over half of small businesses for a loan, their growth aspirations may prove to be problematic or even unachievable without the necessary funding.

Why are the banks turning down so many SMEs?

There are a variety of reasons, but it often comes down to profit and risk. Banks can be reluctant to offer smaller loans, as there is less money to be made from these loans. Consequently, interest rates can be high for some companies as banks try to turn a profit. Moreover, SMEs who have not been trading long pose more of a risk of defaulting, something banks have sought to avoid in their loan books since the introduction of tighter bank regulations.

Simply put, the banks are reluctant to lend to small businesses.


The overall reduction in bank lending to SMEs has led some small businesses to believe that applying for a bank loan is too difficult, confusing, and will likely be refused. It can take months for a business to receive a decision from the start of the application through to completion, affecting how quickly companies can grow or seize opportunities.

In addition, traditional banks are still using legacy software and systems, meaning their processes can be slow and muddled. Reductions in bank staff have impacted their ability to build relationships which might otherwise have helped SMEs through the loan application process.  With 7 out of 10 businesses only seeking one finance provider (typically banks) and nearly 40% of SMEs declining to seek other options after their first rejection, the opinion that bank loans are difficult to attain could very well have a significant impact on business growth and expansion.

Overcoming the barriers to getting a bank loan

For small businesses in need of finance to grow or expand, approaching the banks can seem like a slow and daunting process. There are ways to overcome the barriers to finance presented by traditional bank loans. Alternative finance is growing in the UK, offering new and different ways for SMEs to source funding. Crowdfunding, angel investment, invoice trading, and peer-to-peer (P2P) lending are four of many different ways to finance your business without going to a bank.

For SMEs seeking small or short-term loans, invoice trading and P2P lending may provide the right solution. Invoice trading is based on raising finance against customer debt, whereas P2P lending provides loans funded by a group of investors. For eight ways P2P lending can help your business, click here.

For startups and businesses seeking finance with the potential benefit of mentoring or assistance with the day-to-day running of their companies, equity crowdfunding and angel investment are good options to consider. In both of these types of finance, business owners trade equity in their business in return for funding .

These are just a handful of the many ways to overcome the challenges small businesses face when seeking funding for growth. Raising finance for your business doesn’t have to rely on a bank decision.

Interested in learning more about getting a loan with LendingCrowd? Call us at 0131 564 1600 or email us today! We aim to make a decision within 48 hours of receiving an application.

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Lending Crowd

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LendingCrowd is working with the British Business Bank to help deliver CBILS loans to SMEs affected by the Covid-19 pandemic. Find out more: