Serge Santos, founder of Funding Alternative Group, argues that traditional banks are failing the UK’s small businesses, and that alternative finance must rise to meet the gap.
Walk into any boardroom in the Square Mile and you’ll hear the same mantra: SMEs are the lifeblood of the UK economy. But when it comes to actually backing them – especially when they need funding – too many of our traditional institutions are nowhere to be found.
I’ve spent years working in the world of hedge funds and investment banking. Now, as the founder of Funding Alternative Group, I spend every day speaking to the kinds of businesses banks have abandoned: fast-growing, resilient and often profitable SMEs, shut out of credit for reasons that make little commercial sense.
SMEs don’t just need capital – they need support, understanding and a partner who shares their vision. Ethical lending isn’t just good business – it’s the right thing to do.
SMEs are being denied capital
The UK’s 5.6 million SMEs represent over 99 per cent of all businesses and employ 16.7 million people – approximately 61 per cent of the private sector workforce. But despite this, they’re being underserved by traditional lenders.
According to the British Business Bank, net bank lending to SMEs declined by £8.5 billion in 2023 – the largest fall in almost a decade – yet demand remains high. In the past 12 months, over 40 per cent of SMEs reported needing external finance or funding, but only half of those actually received it.
Most SMEs don’t need millions – they need working capital to survive seasonal dips, pay suppliers or deal with late payments. But when the answer is “no” on principle, rather than merit, the cost is real: delayed wages, unpaid VAT, strained supply chains and lost business.
The worst part is these aren’t risky bets. They’re real businesses with real customers, real invoices and real growth plans. But to banks, they’re too small, too messy and too “difficult”.
Alternative finance isn’t a back-up plan
This is where alternative finance has stepped in. And let’s be clear – this market is no longer a last resort. It’s a vital part of the UK’s funding ecosystem.
Whether it’s invoice finance, asset-based lending or short-term credit, alternative lenders are offering speed, flexibility and, crucially, judgement. At Funding Alternative Group, we don’t lend based on algorithms alone. We talk to the business, look at the opportunity and move fast – often funding deals in days, not months.
The statistics support this trend. The UK alternative finance market was valued at £14.3 billion in 2023, up 28 per cent year-on-year, according to the Cambridge Centre for Alternative Finance. SMEs now represent over 70 per cent of recipients, with most going towards short-term lending and invoice finance products.
Yes, this type of capital is more expensive, but for many firms, the alternative is worse: missed payroll, lost contracts or even closure. When your back is against the wall, paying a premium for speed and certainty is a sensible decision.
The sector must step up before someone else does
That said, we can’t ignore the growing risk within our own ranks. There’s a clear split emerging between responsible lenders and opportunists. The former operate in partnership with their clients, prioritising sustainable growth and long-term viability. The latter see struggling businesses as targets – pushing debt that’s poorly structured, mis-sold and often refinanced into oblivion.
Worse still, the role of brokers in this ecosystem remains largely unregulated. With no enforced standards for advice or disclosure, too many SMEs are being sold unsuitable products by brokers chasing the highest commission. It’s a system built on incentives that reward volume over value.
If alternative finance is going to be a real and lasting solution, this needs to change. We have to make a clear distinction between serious platforms and the cowboys bringing the sector down.
Institutions like the British Business Bank need to rethink who they support – shifting capital away from large quasi-banks and towards agile, independent lenders who are already delivering results on the ground. We also need proper regulation around broker conduct – mandating transparency, accountability and standards that put business owners first.
Final thoughts
The truth is, the UK’s small businesses aren’t asking for a handout, they just need a fair chance.
This is about more than fixing a broken system – it’s about building a better one. One where access to capital comes with accountability, empathy and purpose.
If the major banks can’t provide that, then it’s down to us to make sure someone else does – and does it right.