If you’re running a small or medium-sized business in the UK right now, the mood music isn’t exactly cheerful.
According to iwoca’s latest SME Expert Index, 70% of business finance brokers say conditions for small businesses have deteriorated since the Labour Government took office, and a similar share think the Government has negatively impacted businesses during its first year in power.
At the same time:
52% of brokers say rising running costs are the number one concern for SME owners
78% expect inflation to be at 3% or higher by year-end, well above the Bank of England’s 2% target
On the surface, the story is simple: higher costs, stubborn inflation, nervous lenders.
But if you look more closely at the SME Expert Index data, including how brokers choose lenders, what gets deals declined, and the loan sizes being requested, a very different picture appears:
There is capital available. The businesses winning are the ones that understand how lenders are thinking and package their deals accordingly.
This article breaks down what the iwoca SME Expert Index is really telling us about SME finance conditions in 2025, and how you can turn a difficult environment into an advantage for your business.
What the iwoca SME Expert Index Tells Us About Business Finance in 2025
Brokers see a tougher environment, but strong, ongoing demand for finance
The SME Expert Index surveys hundreds of UK SME finance brokers who collectively submit 3,000–5,000 small business finance applications per month.
The 2025 picture looks like this:
70% of brokers say conditions for small businesses have worsened since Labour came to power.
Running costs are consistently the top concern for SME owners (around 52–53% of brokers pick this as the single biggest issue).
Recession fears haven’t vanished: in recent waves, around 40–50% of brokers say their clients are still worried about the prospect of a downturn.
Yet demand for finance remains solid: separate iwoca releases show a rising share of brokers describing demand from small businesses as “high”, and many expecting loan demand, especially for £100k+ facilities, to increase over the next year.
In other words: Small-mid size businesses are under pressure, but they’re still investing, refinancing and borrowing to survive and thrive.
When you’re given two loan offers, cost and amount win
The SME Expert Index data shows how brokers say clients react when presented with two competing unsecured loan offers.
Across multiple quarters, the picture is strikingly consistent:
“Cost of finance” is the single biggest deciding factor, chosen by around 50–62% of brokers each quarter.
“Approved amount” comes second, typically in the 23–30% range.
Loan term and flexibility matter, but far less (usually under 15% each).
This tells us two key things:
Price matters, but so does getting enough funding to actually solve the problem.
Many businesses will accept a slightly higher rate if the approved amount properly covers their working capital gap, tax bill or growth project.Flexibility is a differentiator, not the starting point.
Features like repayment holidays, top-up options or early settlement are valuable, but only after cost and amount are acceptable.
For a business owner, that means: if you can demonstrate affordability clearly and justify the quantum you’re asking for, you’re already aligning yourself with how the lending market thinks.
How brokers choose which lender to use
The Index also asks brokers what most often influences which lender they send a deal to. The recurring top answers:
Pricing, chosen by around 69–77% of brokers in recent quarters
Speed of decision, typically 58–73%
Whether the requested duration and amount fit the lender’s sweet spot, regularly 30–50% combined
Number of documents vs loan size, and operational support are meaningful but secondary factors
So the practical hierarchy in the broker’s head looks like:
Price + speed + fit (amount/term) → then friction (docs/admin) → then extras
If you want your application to be attractive, your numbers need to fit a lender’s box cleanly and your documentation needs to be tight and proportional to the loan you’re asking for.
What SMEs are actually borrowing
On unsecured deals, the most commonly requested loan bands over time cluster around:
£25,001–£50,000
£50,001–£100,000
And increasingly £100,001–£200,000
In recent data, those three bands together often account for 70–80% of unsecured applications, with £50k–£100k typically the single most common category.
That’s important context: a lot of the market action isn’t in micro-loans or £500k facilities, it’s in the £25k–£200k range, where good data and presentation can significantly improve terms.
The Real Challenges Behind the Data
The Expert Index also gives a clear view of what’s going wrong for many smaller businesses.
Rising running costs + stubborn inflation
More than half of brokers say rising running costs are their clients’ biggest concern, quarter after quarter.
On top of that:
Around two-thirds to three-quarters of brokers expect inflation to overshoot the 2% target, often landing at 3%+ in their predictions.
This double hit means:
Margins are squeezed, even if revenue is stable
Future costs feel uncertain, making long-term commitments (like 5-year loans or leases) emotionally harder to swallow
Lenders see this in the numbers as volatile cashflow and thinner profit cover, which naturally pushes some applications into decline or higher-rate territory.
What actually gets applications declined
The Index breaks down the most common reasons lenders reject loan applications. Over the 2023–2025 period, the top clusters are:
Poor cash flow, often the single biggest reason, particularly in more recent quarters
Poor credit history, especially where there are recent missed payments, CCJs or defaults
Ongoing debt obligations, too much existing borrowing relative to income
Insufficient income, where the business just doesn’t generate enough profit or turnover to justify the requested facility
A growing share of declines linked to not being a homeowner, in certain lender niches where property ownership is a key risk comfort factor
Note what doesn’t lead the table for loan rejections:
“Industry too risky” and “recession” are concerns, but they’re not the dominant rejection reasons. Far more often, lenders are saying no because the numbers don’t stack up cleanly enough.
Perception that banks are stepping back
Across multiple waves of the SME Expert Index, brokers consistently report that high street banks are reducing their practical appetite to fund SMEs. Decisions feel slower, criteria feel tighter, and many businesses sense a growing distance between what banks claim publicly and what they actually approve on the ground.
This perception is reinforced by another trend highlighted in complementary market releases: alternative and challenger lenders are now handling a growing share of SME applications, with brokers increasingly favouring non-bank providers for speed, clarity, and appetite.
At first glance, this seems at odds with recent headlines showing that high street banks have increased their “SME lending” volumes. But this is where the definition becomes crucial.
Banks’ ‘SME lending growth’ does not reflect the real SME market
When banks talk about expanding SME lending, they are typically referring to the top 10–15% of the SME universe, established, well-capitalised firms with:
£20m+ turnover
Strong balance sheets
Property security or significant assets
Clean credit profiles
Dedicated CFO/FD capability
These companies borrow £5m–£25m+, not £25k–£200k.
So while macro “SME lending” may rise, access becomes more selective, leaving the vast majority of real SMEs, the ones turning over £150k–£3m and needing £25k–£200k, with fewer options, or in most cases no options, from traditional banks.
This is exactly why:
Brokers still experience declining high-street bank appetite
SME owners increasingly feel banks are “pulling away”
Alternative lenders are capturing the everyday working-capital and asset finance deals that banks no longer prioritise
This context ties directly to the insights shared in our internal analysis: banks favour the safest SMEs, not the ones who actually need agile, unsecured, operational finance.
And the gap is even wider for female business owners
Another group disproportionately affected by tightening bank criteria is female founders.
Research shows that women entrepreneurs are:
more likely to be declined by high street banks
more likely to be offered smaller limits from high street banks
more likely to experience bias-driven suitability hurdles from high street banks
and yet are far more likely to receive alternative finance from alternative lenders
This mirrors findings in our own analysis of gender disparities in SME lending, and supports the trend highlighted by the Expert Index: you can read about why banks are failing women entrepreneurs and how alternative lenders are closing the gap here.
Where the Opportunities Are: Using These Trends to Your Advantage
If you strip away the politics and pessimism, the SME Expert Index is essentially a playbook for how to approach funding in 2025.
Opportunity 1: Present yourself like a low-risk borrower in a high-cost world
Lenders can’t control your running costs or inflation. What they can control is their perception of your risk.
The data tells us they’re most nervous about:
Chaotic or negative cashflow
High existing debt relative to income
Patchy repayment behaviour
You can tilt that in your favour by:
Stabilising your cashflow pattern:
Tighten up debtor days
Cut ad-hoc personal spending from the business account
Smooth out supplier payments where possible
Showing headroom:
Demonstrate that repayments are comfortably covered by historical and projected cashflow
Stress-test your own numbers at higher costs or slightly lower sales
When a lender sees predictable inflows, controlled outflows and clear repayment cover, the conversation moves from “if we’ll fund” to “how we’ll fund”.
Opportunity 2: Use alternate lenders’ strengths, speed and flexibility
Brokers are sending more deals to alternative lenders for a reason:
Speed of decision is a top-two factor in lender choice
Challenger/fintech lenders often give decisions in hours or days, not weeks
Many of them can accommodate:
Shorter terms
Interest-only periods
Revenue-linked repayments
In a world where time is often more critical than a fraction of a percent on rate, that speed can be the difference between:
Taking on a lucrative contract
Covering a tax bill without penalties
Or having to say no and stunting growth
The key is to match the product to the need:
Short, sharp cash gaps → working capital / flexi-loan / revenue-based products
Tax and VAT obligations → specific tax-funding or term loans aligned to the liability
Growth projects → structured term facilities with sensible repayment profiles
Opportunity 3: Right-size your ask to sit in the lender’s sweet spot
Most unsecured demand in the UK falls into the £25k–£200k range, and lenders have very clear internal appetite bands where their pricing and risk models are strongest. When a request fits neatly inside those boundaries, the path to approval is dramatically smoother.
If your business:
turns over £500k–£1m+,
has at least some profit history, and
can show clean, predictable bank behaviour,
…then asking for £50k–£150k with a term that reflects your cash conversion cycle is far more effective than stretching for the theoretical maximum a calculator or online guidance suggests. And this is where many SMEs unintentionally set themselves up for disappointment.
We often meet business owners who say something like:
My turnover is £76k, and I want £80k to grow.
The reality is blunt:
That is impossible unless you have an exceptionally compelling reason.
No lender will issue a facility equal to 100%, or more, of turnover without extraordinary justification, because the affordability and proportionality simply don’t stack up.
That said, and this is important, extraordinary cases do exist.
For example, this year we secured a £1.2m loan facility for a company with £0 turnover.
Why?
Because the business had one heck of a reason, a unique set of circumstances, contracts, guarantees, and strategic positioning that justified the risk. It was a complex, specialist structure tailored to a very unusual scenario.
But this is the exception that proves the rule:
For 99% of SMEs, aligning your funding request with your financial footprint is the fastest way to get approved.
The Index supports this too: brokers overwhelmingly favour deals where the requested amount and term clearly match a lender’s known comfort zone, because those are the applications that sail through underwriting instead of getting stuck.
Opportunity 4: Use a broker as your “translator”
One under-discussed takeaway from the SME Expert Index is just how much brokers influence outcomes:
We know which lenders are tightening up on certain sectors
We understand each lender’s risk triggers (cashflow volatility, CCJs, gearing levels, etc.)
We can often restructure a deal (security, term, amount) to shift it from a decline to an approval
Given that rejections are most commonly about cashflow, debt load and credit quality, having someone who can:
Pre-screen your numbers
Anticipate lender objections
Package your application in a way that pre-answers concerns
…is a genuine competitive advantage.
In a market where conditions have deteriorated but demand remains strong, well-packaged deals from well-prepared businesses are exactly the ones that get funded.
Practical Steps SMEs Can Take Today
Here’s how to turn the SME Expert Index into an action list.
1. Clean up your bank statements
Over the next 3–6 months:
Avoid personal spending from the business account
Reduce cash withdrawals and ambiguous references (“transfer”, “bits”, etc.)
Make regular payments look regular: payroll, rent, key suppliers
Lenders see pattern and discipline as a proxy for control.
2. Map your cash conversion cycle
Understand, in weeks:
How long it takes from spend, to sale, to cash in the bank
Where the biggest delays are (stock, late-paying customers, project milestones)
Then:
Align your loan term to that cycle
Show lenders that borrowed capital is directly funding working capital gaps or defined growth steps, not vague “buffer” borrowing
If you want to learn how to calculate your cash conversion cycle (CCC), read this article.
3. Build a simple funding pack
Before approaching any lender or broker, pull together:
Last 12 months’ management accounts (P&L and balance sheet)
The last 6–12 months’ business bank statements
A short funding note explaining:
How much you need
What it’s for
How it gets repaid (with reference to your actual cashflow pattern)
This directly tackles the most common decline reasons: poor cashflow evidence and insufficient income.
Alternatively, speak directly with one of our consultants, free of charge, and we will guide you through all of this.
4. Right-size your request
Don’t over-apply for borrowing. Not only does it lack financial logic, it also makes you appear riskier to underwriters who are assessing your ability to make rational financial decisions. Here’s a quick sense-check:
If you’re asking for £100k+ on sub-£500k turnover with thin margins, expect extra scrutiny
Consider:
Splitting into stages (e.g. £60k now, further top-up once milestones are hit)
Matching the ask more closely to a specific, quantified need (e.g. tax bill + stock for confirmed orders)
A slightly smaller, well-justified ask often beats a stretched, optimistic one.
5. Diversify away from relying solely on your bank
Given that market data shows high street banks are reducing SME appetite, and the data showing alternative lenders now leading on application volumes, it’s sensible to:
Keep your existing bank relationship
But explore specialist lenders for:
Working capital
Tax and VAT funding
Invoice and receivables solutions
Asset-light unsecured facilities
This doesn’t mean abandoning your bank if you have an existing borrowing relationship, it means building a funding stack that’s more resilient and responsive.
6. Use your broker properly
If you already work with a broker, push them on:
Which lenders are currently most active in your sector and size band
How your numbers compare with recent approvals they’ve seen
Whether your application should be restructured, not just re-submitted, if it’s declined
If you don’t work with a broker, and you’re not getting the answers you need, this is exactly the environment where you may benefit from an experienced intermediary.
Conclusion: Turning a Difficult Market into a Strategic Edge
The iwoca SME Expert Index paints a clear picture:
Costs are up, inflation is sticky, and SMEs feel under pressure.
Brokers think Government support for small businesses is falling short.
But demand for finance is strong and capital is still flowing, especially through specialist and alternative lenders.
For business owners, the message is not “give up until conditions improve”.
The message is:
Those who understand how lenders think, and who package their numbers accordingly, will continue to get funded, even in tougher conditions.
If you can:
Stabilise and clearly present your cashflow
Right-size and clearly justify your funding ask
Choose the right mix of bank and non-bank lenders
And use expert guidance to avoid the common decline triggers
…then you can still access the capital you need to stabilise, invest, and grow in 2025.
Finspire Finance
If you’re:
A business owner unsure how these trends affect your next funding decision, or
An accountant or adviser with clients facing rising costs and tighter bank appetite
…it’s the ideal time to review your funding strategy with our specialists.
We can help you:
Interpret what lenders will see in your numbers
Match your needs to the right type of facility and lender
Package applications to maximise approval chances and secure competitive terms
