Finance that fits: what SMEs really need from credit in 2025

SME lending is back in the headlines. In the first quarter of 2025, UK high-street banks issued billions in new loans, supported by expanded government schemes and renewed interest in business credit. On paper, the recovery looks strong. But in practice, many founders still find themselves working around finance rather than with it.

During the years I've spent in banking and now leading a company supporting small businesses daily, I’ve seen the same pattern repeat. Capital is available, but the way it is structured rarely reflects how businesses actually grow. The result is a funding environment that appears active but often lacks traction where it matters most.

This article explores a gap that is rarely addressed: not access, but design. We’ll look at why lending structures fail to support long-term growth, how product uniformity creates unnecessary friction, and what needs to change for SME finance to become genuinely enabling, not just available.

Lending Volume Doesn’t Equal Lending Impact

UK high-street banks issued £4.6 billion in new SME loans during Q1 2025, marking a 30 percent year-on-year rise, according to The Times. The numbers suggest momentum. Yet many small business owners still can’t use funding the way they need to. Credit is easier to find, but not easier to use. Most loans still come with short timelines and rigid terms. Repayments are fixed, even when revenue isn’t.

These conditions may satisfy balance sheet requirements, but they rarely reflect how small businesses actually operate.

The Bank of England’s Financial Stability Report (April 2025) points to ongoing mismatches between lending terms and business realities. Founders trying to invest in inventory or marketing campaigns often face rigid timelines that ignore how revenue flows into the business.

This disconnect is especially pronounced in digital-first sectors. A facility might meet formal lending criteria, but if it disrupts cash flow or forces early repayments, it can stall rather than support growth. Meeting lending targets is not the same as meeting business needs. Closing this gap means reshaping how credit works—not just where it goes.

One Product Can’t Serve Every Business

Many lending products today are designed for scale, not nuance. Eligibility rules are fixed, repayment terms are inflexible, and credit is often assessed in isolation. This creates friction for founders whose businesses follow seasonal, campaign-driven or inventory-heavy cycles.

A growing e-commerce brand and a local café may both qualify for finance, but their capital needs are not the same. Offering them the same structure, priced and scheduled the same way, ignores the realities behind the numbers.

Earlier this year, the Growth Guarantee Scheme added £500 million in public-backed funding to help fill these gaps. Yet according to major banks, much of this capital remains untapped. In many cases, the products exist, but the design still doesn’t reflect how businesses operate.

Credit should do more than preserve lender risk profiles. It should recognise sector-specific patterns, adapt to performance signals, and allow for growth on the founder’s terms.

When finance is shaped around institutional comfort rather than business context, too many SMEs are left working around the product instead of with it.

Lending Needs to Measure What Matters

More capital is not the same as better capital. A credit line should support progress, not just meet credit criteria. For many founders, especially those in digital-first sectors, real value comes from funding that aligns with how the business actually grows.

This means designing products that move beyond static models. Lending terms can adapt based on performance, revenue patterns, or sales cycles. Tools like open banking, real-time sales integrations, and marketing data already exist. The next step is building credit models that reflect this full picture.

The Bank of England’s April 2025 report says lenders should use more kinds of data to make better decisions. It also points out that lenders are expected to understand how small businesses actually run.

Designing lending around real business activity is not just a technical upgrade. It changes the relationship between lender and borrower. Founders gain confidence when capital feels like a partnership, not a trade-off.

The question is not whether businesses can access finance. It is whether the finance they access helps them move forward on their terms. Measuring success by repayment alone misses the point. Lending should also be measured by what it enables.

UK lending figures show progress, but headline growth can obscure deeper issues. The challenge for 2025 is not simply unlocking more credit. The real challenge is to redesign credit. It should match who it's for and how businesses really grow.

Key takeaways:

• Lending is up, but most small businesses still can’t get the kind of capital they need long term

• Standardised products continue to create friction for diverse business models

• Founders benefit most from funding that aligns with real commercial rhythms

• Lenders must shift focus from distribution to design

Credit should act as a partner—not just a transaction. That shift requires a change in mindset as much as in modelling. It means designing finance that moves in step with the businesses it’s meant to support.

I’ve written before about non-dilutive capital, founder expectations of lenders, and how fintech is reshaping SME growth. But this conversation remains unfinished. What small businesses need most right now is funding that understands how they grow—and adapts accordingly.

If you could rebuild one part of the SME finance experience, where would you begin? I’d love to learn from your view.