Emma Lovell, chief executive of the LSB (Lending Standards Board), explains why with the £25 billion raise in employers’ National Insurance contributions looming – coupled with a tough economic environment – business owners’ wants and needs for SME lending
are changing. What trends are reshaping this landscape in 2025, and how can banks and lenders be ready to help?
Small and medium-sized enterprises (SMEs) have been dealt a tricky hand. In her maiden Mansion House speech last year, Chancellor of the Exchequer Rachel Reeves set out bold ambitions for innovation and economic growth. Yet economic uncertainty continues
to weigh heavily on business leaders’ shoulders. With the Pound dropping to a
14-month low at the start of this year, government borrowing costs continuing to steadily rise, and employers facing a hike in National Insurance contributions come April, many SMEs will be relying on access to finance to stay afloat.
Data from
RFI Global on behalf of the LSB has revealed that around 3 in 5 SMEs report facing financial difficulties, with research from the
Institute for Turnaround finding a 10% increase in the number of distressed companies across the UK, plus a rise of around 60% since 2017 – stark evidence of the mounting challenges for business owners.
The coming months will be pivotal for SMEs, facing a mixture of optimism, ambition, and uncertainty. How banks and lenders shape their support during this period could be the make-or-break for many small businesses.
A cautious shift from survival to growth
Since 2020, SMEs have been pushed from challenge to challenge – forcing them to be in reactive, ‘firefighter’ mode to navigate issues like COVID-19, the war in Ukraine, and the cost-of-living crisis.
However, today, the focus is shifting towards growth and profitability. And as the landscape evolves, so do business owners’ needs. Many SMEs are now exploring areas like automation and technology to deliver operational efficiencies for their businesses
and home in on cost-savings and profitability.
The data from RFI Global revealed that one in four SMEs plan to take out new lending products within the year, highlighting a strong appetite for borrowing, with quick access to funds and flexibility in repayment options listed among the top priorities when
choosing a lender; hardly surprising considering their plans for growth and profitability.
Therefore, there is appetite for both flexible short-term solutions, such as B2B payments, invoice finance, and even Buy Now, Pay Later (BNPL) options, alongside investments for future growth.
Despite the challenges of the last few years, lenders must strike a balance between risk mitigation and allowing space for innovation and growth, something the LSB’s
best practice business Standards provide a framework for.
Supportive, flexible, and efficient lending services – but with a human touch
Emerging lenders are reshaping the lending market for small businesses, becoming the preferred choice for businesses seeking tailored financial solutions. Data from the
British Business Bank shows 59% of SME lending in 2023 came from outside the UK’s five largest banks – up from well under 40% in 2013.
Many of these lenders are prioritising protections for SMEs by committing to industry best practice and providing tailored support, which is a growing priority for SMEs. Now lenders must ensure their digital experiences, that often simplify and streamline
processes, do not come at the expense of the personalised support that SMEs need for growth.
Many SMEs value a hybrid approach, where digital solutions enhance efficiency while human expertise remains on hand when needed. For businesses in financial distress, or those requiring tailored financial advice, the human touch is particularly important.
The challenge for lenders is to develop attractive and intuitive digital products that can be used at speed, while maintaining high levels of customer service and aligning with rigorous industry standards.
Treading carefully into the future
The economy is not out of the woods by any means, but SMEs are beginning to allow a sense of optimism. Access to lending is vital for growth, however. While lenders remain – understandably – guarded, there’s a growing demand among business leaders for greater
flexibility, transparency, and efficiency to support their growth and that of the economy.
Perhaps it is time for both business leaders and lenders to put past challenges behind them and step carefully into a more prosperous 2025. After all, the businesses that drive innovation and employment in the UK deserve a lending environment that supports
their ambitions and safeguards their futures.