Sonovate’s data reveals a major shift as 40% of UK SMEs turn to alternative lenders, reshaping the financing landscape amidst a cost of living crisis.

It has frequently proven challenging for traditional banks and lenders to digitise and stay competitive with the services of emerging alternative fintechs. According to Sonovate, an alternative finance and payment solutions provider, 40% of small and medium-sized firms (SMEs) in the UK have found it easier to obtain financing from alternative lenders, which indicates a decline in business for incumbents.

With seven out of ten (70%) SMEs stating they wouldn’t have survived the present cost of living crisis if it weren’t for these types of lenders, alternative funding choices are increasingly providing a lifeline for UK SMEs.

However, difficulties for SMEs in the UK don’t end there. Due to banks’ withdrawal from the market, two-thirds (65%) more SMEs are having more trouble obtaining financing from high-street banks than they did in 2022.

According to data from UK Finance, high street banks are showing less desire to lend to small and medium-sized businesses (SMEs), with gross loans reaching a post-pandemic low of £3.7 billion in Q1 2023. Half of the £7.6 billion from two years prior was this, and it slightly decreased to £3.6 billion in Q2.

Co-founder and co-CEO of Sonovate Richard Prime says, “It’s not surprising that SMEs are turning to alternative finance options as they pursue growth plans and continue their post-pandemic recovery, given the reduced appetite among high-street banks.”

“Fintech lenders are effectively upending the established players because they have a better grasp of the unique finance requirements of SMEs and can respond fast to provide on-demand funding solutions. With this strategy, fintechs are able to provide finance decisions more quickly than the more established market players, enabling the creative SMEs in the UK to focus on revenue generation and expansion rather on fundraising.

Advantages of alternative lenders

alternative lending

Due to lower financial overheads and more efficient operations, alternative lenders are able to provide more lower-cost solutions in addition to having a greater appetite to finance SMEs. These financing solutions can help small and medium-sized businesses (SMEs) increase cash flow, open up investment opportunities, automate tasks, and ultimately improve customer service.

Nevertheless, more work needs to be done to open up access to alternate funding options given the ongoing cost increases and the predicted hike in energy bills this winter. There have been requests for the government to take on a more prominent role. More government guidelines on small business funding choices are needed, according to two-thirds (64%) of SMEs.

Fintech lenders can also provide funding options that are integrated into an organization’s platform, facilitating faster access to capital. Over three quarters (77%) of SMEs feel these technologies have enhanced business processes, such as cash flow management and transactions. Invoice financing, or borrowing against the value of an outstanding invoice, is still a popular funding option for SMEs.

A majority of SMEs (51%) feel that implementing fintech technologies, including accounting or payroll software, would increase their efficiency, while 54% think it would save them time. Furthermore, according to 47% of SMEs, these financial technologies would offer better customer information.

Making Traditional Funders Work Harder

Recently, Sonovate introduced a new platform that improves productivity and simplifies procedures. It benefits companies of all sizes by offering better timesheet automation, financial visibility, and reporting, as well as greater integration throughout their range of IT solutions. Better customer experience, quicker onboarding, and more flexible, on-demand fund withdrawals are further advantages.

Founded to compete with conventional bankers, Sonovate offers on-demand invoice finance to firms of all sizes. Fast credit decisions, same-day funding, credit insurance, collection services, timesheet automation, and workflow management are all provided by the IT platform.

Moreover, it enables businesses to focus on growing, knowing that systems and resources are in place to support meeting payment deadlines. Sonovate has lent more than £4.2 billion to 3,300 companies and 40,000 employees across 44 countries since it began funding in 2014.

With the deliberate addition of Lloyds Bank to its network of financing partners, Sonovate recently reported a substantial rise in its securitization to £240 million from the £165 million revealed last year. Through the expansion of its lender pool, this acquisition strengthens Sonovate’s ability to grow its clientele and finance more foreign businesses, further solidifying its leadership position in the fintech sector.

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