Should SMEs be looking beyond traditional banks?
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Should SMEs be looking beyond traditional banks?

Since the 2008 financial crisis, consumer trust in banks has declined and despite efforts to support customers during the COVID-19 pandemic, the level of trust in traditional banks remains low.

A recent report published by Accenture found a common perception that banks are unable or insufficiently interested enough to promote their customers’ financial wellbeing. The survey found that of the businesses that had been negatively impacted by COVID-19, 32% had lost trust in their banks during this period.

As a result, alternatives to traditional banks have seen growing demand during 2020, continuing to positively disrupt the financial services sector. It’s something that will continue to accelerate with many alternative finance providers and challenger banks offering a fresh and sometimes completely new solution for SMEs across the UK.

The fintech revolution

The world is continuing to move online, and the impacts of the coronavirus pandemic have further accelerated the digital shift. This has meant that over the past ten years, opportunities for a new way of banking have emerged, and we’ve seen the evolution of a new wave of online financial services companies, known as fintechs.

Fintech, or Financial Technology, refers to new technology that works to improve the delivery and use of financial services. This could be anything from payment or banking apps, to crowdfunding platforms and alternative finance providers.

A fantastic example of just how much this industry has grown is digital bank Revolut, which in February this year became the UK’s most valuable fintech start-up after funding saw its value triple to £4.2bn. The bank launched in July 2015 and in just over five years has gained over 10 million customers worldwide. 

The benefits of looking past traditional banks

In 2019, the Global FinTech Adoption Index found that a staggering 46% of SMEs use a financing fintech service, with 56% also using a banking or payments fintech service – proving that SMEs are increasingly turning to this new way of banking.

So, why are SMEs using alternatives to traditional banks?

One of the main benefits of fintech solutions is the flexibility they offer, which for SMEs who have less rigid business models is a huge bonus. The speed of these new solutions is also a huge benefit, with SMEs often having access to bank accounts, payment methods and funding within days or sometimes hours of applying. What used to be a long and complicated process can now be done quickly, and from anywhere at any time.

Another huge factor is cost, with many challenger banks and alternative finance providers offering better solutions. With lower overheads and less associated costs, the traditional banking giants have found it hard to compete.

The role alternative lenders will play in a post-Covid recovery

With SMEs making up 99.9% of UK businesses, supporting and boosting these kinds of enterprises is going to be key to the UK’s financial recovery following the COVID-19 pandemic.

However, with the government enforcing stricter COVID-19 measures that have seen some businesses close for an indefinite amount of time, the future for SMEs still remains incredibly uncertain. This combined with the current government-backed loan schemes coming to an end mean many SMEs are having to explore alternative solutions to fund their recovery and growth plans.

Many traditional banks are still cautious of lending to small businesses and a recent SME Finance Monitor report found that the success rate for bank loans in the UK had continued to decline and is now just 69%.

That’s where alternative finance can play a key role. A huge benefit of this kind of funding for SMEs is its flexibility, and for businesses that are having to respond and adapt to the ever-changing landscape, this is vital.

We know what small businesses need

Having worked with SMEs across the UK for over 10 years, we understand the unique challenges that SMEs face when it comes to sourcing funding for their business. In fact, we launched during the financial crisis in 2008 to provide a new solution for UK businesses who were struggling to find funding through the traditional routes.

A Capify business loan offers SMEs a unique opportunity to raise upwards of £5,000 and can be used on almost anything they need. Unlike a traditional loan, Capify’s loan is paid pack in small but regular repayments which are completely automated – meaning there are no large lump sums to pay.

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