SME lending tech trends in 2024: A conversation with Funding Options by Tide & money.co.uk

In times of economic turbulence, lending becomes vital to the resilience of UK-based SMEs. 

Despite the crucial role lending plays in the success of SMEs, many traditional lenders still regard these businesses as higher risk, leading to less-than-ideal risk appetites.

According to a 2023 FinTech Global report, 70% of UK SMEs have stated they could not have survived the ongoing cost of living crisis without alternative financial solutions. Additionally, 4 in 10 UK SMEs now prefer FinTech lending services over mainstream banks. 

To uncover the truth of this issue, Funding Options by Tide spoke with Kyle Eaton, a Small Business Expert at money.co.uk, to discuss how technology trends are reshaping lending for SMEs. 

Before diving into this conversation, however, let’s examine the current state lending technology.

Lending technology debrief: the tech behind the trend

The meteoric rise of technologies like cloud-based platforms and artificial intelligence (AI) has had widespread impacts across the global lending sector. 

Recent research projected the global digital lending platforms market to reach a value of $11.5 billion in 2023. This growth is driven by several factors, with some of the most prominent being a rising demand for digital channels, an increasing need for faster loan approvals and disbursements, and increased investments in emerging technologies in the lending sector. 

As for the most promising emerging technologies, AI and machine learning (ML) stand as two of the biggest, both in terms of benefits and implementation challenges.

Keeping these insights in mind, let’s turn the mic over to Kyle. 

Driving competition with digital platforms and online lending

Question: How have digital platforms and online lending solutions transformed the landscape for SMEs seeking financing in the UK?

Kyle Eaton: Digital and online lending solutions have generally made life easier for SMEs. Having the ability to see multiple options in one place has streamlined the process, paving the way for faster access to credit alongside more straightforward applications. All of which stimulates competition in the market, providing SMEs with more competitive options to consider when deciding which products and services are right for their business.

The Growing role of alternative lenders in the SME space

Question: What role are alternative lenders, such as peer-to-peer lending platforms and crowdfunding, playing in providing capital to SMEs, and how are businesses responding to these options?

Kyle Eaton: Peer-to-peer lending and crowdfunding platforms have opened up alternative options to SMEs meaning they’re no longer restricted to just the traditional banks when seeking finance. And because these alternative options, which provide a link to a much wider set of investors, aren’t constrained by conventional practices - SMEs often find these alternative options offer more flexible borrowing terms and potentially faster approval times. SMEs seem to be engaging positively with these more efficient options which allows them to focus more on their business and less on the admin.

Post-covid recovery: the impact on traditional banking risk assessments

Question: In the context of economic recovery post-COVID-19, what changes are observed in the criteria and risk assessment methods used by traditional banks when lending to SMEs?

Kyle Eaton: Following COVID-19, traditional banks have taken an interest in how businesses now prepare for uncertain future events. Banks are interested in how resilient a business is and how quickly a business feels it can adapt. This helps give banks a better understanding of how a business can both cope and then react to change, helping the bank with its lending assessment and decision. 

Government-backed loan schemes provide new lending options to SMEs

Question: How are government-backed loan schemes, like the British Business Bank initiatives, impacting SMEs’ access to finance, and what are the trends in terms of loan uptake and repayment?

Kyle Eaton: Government-backed loan schemes have been a helpful option for SMEs, providing support with lower interest rates and government guarantees. It is an ever-evolving space with the government launching an inquiry into SMEs’ access to finance in 2023 so it will be interesting to see their response and decision making on how future action is taken.

Improving loan applications with innovative tech

Question: With the rise of FinTech, how are SMEs leveraging innovative financial technologies for better loan application processes, quicker approvals, and improved access to credit?

Kyle Eaton: SMEs are able to leverage and utilise these innovative technologies by either accessing finance or receiving a decision on a finance application more quickly. This means they can plan accordingly, get their business plan in motion and not get bogged down in admin. And thanks to the nature of FinTech, with a more user-friendly experience, the whole process is more accessible - creating a fairer environment for all SMEs. 

Trends in collateral-free lending for SMEs to consider

Question: What trends are emerging in terms of collateral-free lending for SMEs, and how are financial institutions adapting to evaluate creditworthiness without traditional forms of security?

Kyle Eaton: Financial institutions continue to evolve their credit assessments. Many now will consider additional factors to allow a more detailed evaluation of a businesses performance. These factors might include business cash flow, statement history, business plans, and a view of the performance of the business both historically and recently. This more open minded approach can really help out startups and new businesses who might not yet have assets to offer up.

How environmentally-friendly practices impact lending approvals 

Question: In light of sustainability concerns, are there any trends in the lending market where SMEs that adopt environmentally friendly practices are more likely to secure favourable loan terms?

Kyle Eaton: SMEs that adopt environmentally friendly practices will find there are additional funding opportunities that may not be available for less sustainability-minded businesses. For example green loans are more readily available than they were previously. Environmental, social, and corporate governance (ESG) businesses will undoubtedly give way to additional thinking from lenders as the direction of travel is that of a course to net zero - and with ESG businesses performing well generally, it’s unlikely that a lender would see it as anything other than favourable. 

AI & ML: the new frontier of SME lending

Question: Are there any emerging trends in the use of artificial intelligence and machine learning in the SME lending market for risk assessment and decision-making?

Kyle Eaton: The use of AI and machine learning in credit applications is more and more commonplace. Using these technologies allows lenders to form a more holistic view of a business without the need to manually sort through years of statements, cash flow trends and other less-common data points such as how a business might’ve adapted to change or demonstrated agility to unforeseen events. This helps the lender make an informed decision more efficiently. 

Tailoring loans to the needs of early-stage SMEs

Question: How are lenders addressing the specific financing needs of startups and early-stage SMEs, and what trends are observed in terms of tailored financial products for these businesses?

Kyle Eaton: Lenders are increasingly offering additional services alongside financing that are designed to help startups and early-stage SMEs. These services might include mentoring, invitations to networking opportunities and advice on writing business plans. The funding may also be tailored to suit individual needs too - for example it might have a more flexible repayment plan. 

Find lending options for your SME with Funding Options by Tide

For growing SMEs and startups, finding reliable lending options is key for obtaining working capital. 

Funding Options by Tide takes pride in providing SMEs with the connections and resources necessary to secure fair alternative lending. Funding Options by Tide is a premier platform for finding business financing ranging from £1000 to £20M.

Through the Funding Options by Tide platform, you can match with 120+ lenders and submit your lending applications for free. 

Plus, Funding Options by Tide provides crucial tools like the Business Loan Calculator to help you compare business loans.  

Don’t just take our word for it — request a quote to discover your funding options today. 

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.