Latest news with #challengerbanks
Entrepreneur
09-07-2025
- Business
- Entrepreneur
Why Your SME Isn't Getting Funded, And How to Fix It
Opinions expressed by Entrepreneur contributors are their own. You're reading Entrepreneur United Kingdom, an international franchise of Entrepreneur Media. According to the British Business Bank, just 43% of smaller businesses successfully secured external finance in Q2 2024, down from 50% the year before. And even when businesses are referred to alternative lenders through the UK's bank referral scheme, only 1 in 20 actually get funding. So it's no surprise that applying for finance has become not only more complicated, but much more competitive. Why lenders are more cautious The drop in approval rates is mostly down to how uncertain the economy still feels, and because lenders are being a lot more careful about who they say yes to. Even though the UK economy grew by 0.9% in 2024, it's still only 3.2% above where it was before the pandemic, which is one of the slowest recoveries in the G7 countries. That kind of slow progress makes lenders nervous, so they're looking more closely at each application and only backing businesses that can show they're stable and low risk. Adding to the challenge is a big shift in where SME lending is actually coming from. In 2024, 60% of business lending came from outside the major high street banks, the highest level on record. Challenger banks and specialist lenders are stepping in to fill the gap, but they're also being picky. Even though total lending to SMEs hit £62 billion last year, most lenders are now backing businesses that can show they've got their finances in good shape, with solid planning, stability and a clear ability to repay what they borrow. The red flags that could be holding you back Even businesses that are bringing in decent revenue are getting turned down for finance, and it's often because of small things that raise red flags. Relying too much on an overdraft, paying suppliers late, or filing your accounts with Companies House after the deadline can all make lenders nervous. These things signal that the business might not be managing its money well, which makes it harder for lenders to trust that a loan will be repaid on time. Cash flow is still one of the biggest challenges for SMEs, and late payments are a major reason why. A 2023 study found that 27% of small businesses in the UK were owed between £5000 and 20,000 in unpaid invoices, and more than half said the problem had got worse over the year. When you're waiting on that much money, it puts a lot of pressure on your cash flow. And when lenders see those kinds of issues, it can make them question how sustainable or stable your business really is. What lenders are really looking for A lot of SME owners think that as long as their revenue is growing, they'll have no trouble getting funding. But in reality, lenders are looking at the bigger picture. Things like steady cash flow, consistent profits and whether you can realistically keep up with repayments all matter more than just how much money you're bringing in. In 2024, loan approvals rose by 23% to nearly 45,000, and overdraft approvals jumped by 47% to just under 59,000. But that doesn't mean it's suddenly easier to get finance, it just shows that more businesses are applying. Lenders are still being selective. What they really want to see is a business that's clear about its numbers, has a solid plan, and can show how it'll repay the money. A steady cash flow forecast, an up-to-date balance sheet, and a clear repayment plan will go further than fast growth that hasn't been backed up by structure or strategy. The problem is often timing. By the time most SMEs apply, it's already too late to fix the numbers. Getting lender-ready starts six to twelve months earlier. You need to show that you're not just making money, but managing it well. Common mistakes that cost businesses the loan One of the biggest barriers is that SMEs aren't applying for funding at all. In 2023, only 3.5% applied for new or renewed finance, and just 26% looked for external advice about their financial position. Fear of rejection or uncertainty about where to start plays a big role, but without guidance, businesses often don't realise they're underprepared until they're already in front of a lender. By that point, it's usually too late to fix the gaps. Even when businesses do apply, simple mistakes can hold them back. Outdated financials, projections that are too vague to be useful, or skipping over weaknesses in the hope they'll go unnoticed can all hurt your chances. With lenders being so selective, these things can quickly lead to rejection. Underinvestment is another common issue. 58% of SMEs who felt they hadn't invested enough blamed the high cost of credit, while 55% said they couldn't borrow at a fair rate. But often, it's poor planning and messy finances that are really getting in the way. How to prepare for funding If you want to improve your chances of getting funding, the work needs to start early, ideally six to twelve months before you apply. That means cutting back on overdrafts, paying suppliers on time, keeping your books and filings up to date, and building out realistic forecasts. It also helps to look at your business through a lender's eyes. If you wouldn't lend to yourself, it's probably time to tidy things up or bring in expert help. Most importantly, these habits shouldn't only kick in when you're actively applying. The businesses that get a yes in 2025 will be the ones that already look strong on paper, not the ones scrambling to look organised at the last minute. Being lender-ready isn't something you tick off once; it's a way of running your business. In today's cautious and competitive lending environment, ambition alone isn't enough to secure funding. Lenders want to see that your business is financially sharp, well organised and has potential to grow, without being risky. If you understand what they're looking for, deal with any red flags early, and build solid financial habits ahead of time, you'll be in a much stronger position to stand out and get the yes you're aiming for.
Finextra
07-07-2025
- Business
- Finextra
Fintech sector braced for fresh wave of disruption as AI changes the game
As artificial intelligence reshapes the business landscape, fintechs stand poised to usher in a fresh wave of disruption as the industry emerges from a prolonged slump. 0 According to a new report from Boston Consulting Group (BCG) and seasoned fintech investor QED, 'Fintech's Next Chapter: Scaled Winners and Emerging Disruptors', the sector has emerged from a tough funding environment stronger, more disciplined, and with greater growth prospects than ever. In 2024, fintech revenues grew by 21% — up from 13% in 2023 — marking a threefold increase over incumbent banks. Meanwhile, the average Ebitda margin of public fintechs climbed to 16%, and 69% of public fintechs are now profitable. Importantly, much of this performance is being driven by a new class of scaled players generating $500 million or more in annual revenue. These now account for approximately 60% of total fintech revenues. 'A class of scaled fintechs is coming of age. Investors are demanding greater maturity, and regulators want more accountability,' says Deepak Goyal, a managing director and senior partner at BCG. 'Meanwhile, emerging disruptors are harnessing next-generation technologies like agentic AI and pioneering new business models, pushing established players to continuously innovate.' The report pinpoints agentic AI as the next wave of disruption, changing the game in commerce, vertical SaaS, and personal financial management. At the same time, challenger banks are scaling fast: 24 institutions with over $500 million in annual revenues are growing deposits at 37% annually — 30 percentage points higher than traditional banks. The funding environment is also maturing, with private credit emerging as a key tailwind for fintech lending. 'Fintechs are winning in spaces where traditional banks have largely ceded the competitive ground, such as banking for lower-income households and buy now, pay later,' says Nigel Morris, managing partner at QED Investors. 'Fintechs are growing three times faster than incumbents as they leverage digital distribution channels and increasingly utilize AI. Having emerged from the last two years with stronger fundamental unit economics and high net promoter scores, it's easy to see why there's an appetite for IPO-ready companies that deliver profitable growth. Fintech is ushering in a new era in financial services.'
Mail & Guardian
17-06-2025
- Business
- Mail & Guardian
How banks can better serve small businesses in Africa
Traditional banks need to figure out a way to serve small businesses. Small companies power much of Africa's economy. But traditional banks haven't fully tapped into this potentially lucrative segment due to risk concerns and stringent onboarding and credit requirements. This gap is being filled. A growing assortment of telecommunications companies and challenger banks are willingly embracing the perceived risks associated with smaller businesses, offering microfinancing and innovative solutions that traditional banks have been hesitant to provide. The allure — higher lending margins today and long-term relationship building for tomorrow. If traditional banks want to remain competitive over time, they must figure out a way to serve this segment — quickly. The category of micro, small and medium-sized enterprises (MSMEs) contributes about Although 80% of MSMEs have bank accounts, about 70% still rely on personal accounts for business transactions. What's more, research from the In all, about 28% of MSMEs in Africa don't have access to credit, Effectively serving MSMEs presents significant opportunities for both banks and the broader economic development of Africa. The continent features a concentration of large commercial enterprises alongside a vast number of informal MSMEs. By formalising this sector, banks can help to unlock its potential, stimulating economic growth. As these businesses gain access to financial services, they can contribute more effectively to job creation and GDP growth, leading to a more resilient and diversified economy. Small and micro businesses present unique risks, such as limited financial records, lack of collateral and vulnerability to macroeconomic events, which explains banks' hesitance to provide a comprehensive range of services. But MSME banking also offers benefits, including fatter lending margins, strong customer relationships and a large value pool. The competitive landscape is fragmented, with players excelling in specific areas rather than holistically. Competition is heating up as digital banks, telcos and fintechs recognise the value of serving MSMEs and tailor products to them. The increasing focus on MSMEs is no coincidence; methods for managing risk and developing a fit-for-purpose risk appetite have evolved. Advanced scoring algorithms that use non-financial data and fintech innovations tailored for MSMEs are now available, all of which are further enhanced by the fast rise of artificial intelligence. Digital banks and fintechs are addressing the payment and financing difficulties of MSMEs in innovative ways. Fintech companies often start with a single product and rapidly diversify their offerings. Lula, for example, began as an MSME lending business and has since entered the banking space, while Yoco, initially focused on payments, is moving into lending based on insights into merchant cash flow. Challenger banks rooted in personal banking are also entering the MSME space. Capitec, for example, recently acquired Mercantile and relaunched as Capitec Business, implementing a new commission-based model for point-of-sale services. TymeBank has enhanced its offerings through the acquisition of an MSME-focused fintech, developing innovative solutions such as a loan product and an AI-driven tool to support businesses in managing their finances. Mobile network operators are broadening their financial service offerings to tap into the MSME market, using their extensive reach. Big tech companies are also launching MSME solutions as part of their broader financial initiatives, such as embedded finance, intensifying competition. Despite the rise of fintechs and challenger banks, traditional banks still have valuable opportunities to work with MSMEs. Their credibility and established reputation resonate with MSMEs, similar to their appeal to larger corporations. But many traditional banks face a dilemma in deciding which MSME segments to prioritise. While they excel in serving medium enterprises, they often struggle to connect with micro and small businesses, where fintechs have gained significant traction. The key question for traditional banks is whether their existing business models can adapt to this evolving landscape without major overhauls. Banks that dominate the upper MSME spectrum might find growth opportunities by targeting smaller enterprises and vice versa. But their current structures could hinder such transitions. As they pursue growth, traditional banks must protect their core business and maintain operational capabilities. Striking the right balance between defending existing operations and exploring new segments will be crucial for long-term success. While it's clear that financing and advisory services remain the most sought-after for MSMEs, there are also opportunities in non-financial services, including documentation assistance, operational support, training and data analytics. These 'beyond banking' services are increasingly seen as must-haves by all banking customers. To succeed, banks must recognise the unique needs of African MSMEs and develop tailored products and services that simplify business operations. This may involve partnering with fintechs and specialists to enhance capabilities and offer fit-for-purpose and personalised solutions. This strategy will not only generate new revenue streams for banks but also equip MSMEs with the essential support they need for growth. Ultimately, a collaborative approach will unlock significant opportunities, driving sustainable growth for companies — and banks — across the economy. Pierre Romagny is a partner in financial services at Oliver Wyman.
