SME finance: Changes needed for better outcomes for SMEs, brokers and lenders

Summary

The latest Finance Connect webcast brought together a broker/CDFI founder, a lender with both bank and non-bank experience, and a technology leader with deep roots in SME lending to tackle a deceptively simple question: what needs to change in SME finance to create better outcomes for SMEs, brokers and lenders?

Moderator Edward Peck – Finance Connect CEO – highlighted that the UK needs growth, SMEs can deliver it quickly, and government is actively trying to increase both lender appetite to lend (including by reducing risk) and SME appetite to borrow. But despite the progress the industry has made – faster decisions, better tech, more product choice -SME lending remains hard: it’s complex, expensive to serve, and inherently risky. The real challenge, Peck argued, isn’t just “more lending” but more lending that produces healthy outcomes and sustainable profits across the ecosystem.

His warning was also clear: if the industry doesn’t lead improvement, others will step in – and external intervention is rarely subtle. That set up the panel’s core task: is there really a problem, what’s causing it, and what should change?

What the market does well — and why that’s not the same as “health”

Paul Goodman, chair of Goodman Corporate Finance, started by acknowledging the industry’s genuine progress. Compared with 10 years ago, SMEs have far more options, access is faster, and product diversity is materially better. But he immediately drew a line between availability and outcomes, saying: “Availability is not the same as health.”

That distinction became a recurring theme: the system can be extremely good at getting money out of the door quickly, while still failing to strengthen the SME’s position over time.

Peck crystallised the issue as he saw it: the industry is brilliant at building an efficient transaction “machine,” but the trade-offs required to make it cheap and fast can create outcomes that don’t match good intentions – especially when nobody owns the SME’s longer-term trajectory.

Speed and volume vs sequencing and outcomes — the “loan stacking” symptom

Goodman argued that what looks like isolated poor practice is often a predictable output of system incentives. He described a market “optimised for speed and transaction volume rather than long-term outcomes,” where individually rational behaviour by brokers, lenders and platforms can create “collectively fragile outcomes for SMEs”.

His most striking example was loan stacking. He described SMEs carrying “six, seven, sometimes even more than 10 concurrent facilities,” including cases where businesses were paying £80,000–£90,000 per month purely in servicing costs. The key point wasn’t moral outrage – it was the structural failure: each facility may have solved an immediate problem, but “none of them… are addressing the underlying cash flow structure.”

Peck tested this directly: is the market rewarding speed and certainty while leaving no one responsible for the end result? Goodman’s answer focused on sequencing. A short-term “emergency” loan to cover payroll might be appropriate – but only as step one in a structured plan that diagnoses why the cash crunch occurred and routes the business toward more sustainable working capital (for example, receivables finance, asset-based lending, or better cashflow planning).

In other words: it’s not that short-term credit is always wrong. It’s that short-term credit without a longer-term pathway can easily become a trap.

The lender reality: competition, controls, and the rise of sophisticated fraud

Steve Bolton, managing director of PEAC Solutions UK, largely recognised the picture but added the lender’s operational reality: SMEs value speed because “time is their most precious commodity”. Yet lenders face constant pressure to shave friction out of the process. He shared a simple internal example: sales saying, effectively, “if we remove one extra check, we’ll move quicker and write more business.”

“SMEs don’t have the time to weigh up the options and don’t understand the finance on offer. That’s a crucial bit that’s missing.”

– Steve Bolton, managing director, PEAC Solutions UK

His argument was not anti-speed, but pro-deliberate design: controls exist for reasons, and removing them to win deals can create losses later – commercially, reputationally, and in customer outcomes.

Bolton also introduced a sharper risk lens: the industry’s increasing reliance on digital speed occurs at the same time as “AI is democratizing technology,” making it easier for bad actors to locate and exploit weak points in lender processes. Faster decisioning can mean less time to detect manipulation, so an ecosystem optimised purely for speed may unintentionally invite more abuse.

Peck summarised what he heard: the industry must build a culture where “doing the transaction fast is not enough” and also collaborate to deal with bad actors rather than ignore them.

Economics, post-crisis structures, and the relationship gap

Bolton then stepped back to explain why some of these tensions exist. Post-financial crisis, changes such as ring-fencing and capital constraints pushed banks toward technology-enabled servicing models, especially in smaller ticket segments where manual underwriting and relationship management became more expensive.

He used an investment analogy: small investors get an app; wealthy investors get a human adviser; and the “in between” often gets something imperfect. Many SMEs live in that “in between” – non-vanilla structures, more complexity than automated models handle smoothly, but not large enough to justify intensive relationship support.

He also emphasised the role brokers have played since the crisis: they put the “shoe leather” into origination and help SMEs navigate a fragmented market. But the growth of broking is also a signal: the old bank-manager coverage model fell away, and something hasn’t replaced it fully.

That “relationship gap” later reappeared powerfully when Goodman described a local regeneration project involving 752 SMEs and said the biggest issue is simple: “They have nobody to talk to.”

Are we fixing the right problem? The audience said SMEs don’t understand options

The first poll asked what the biggest barrier to better outcomes is. The audience landed most heavily on: SMEs don’t understand their options and default to the easiest product (48.2%).

That result shifted the discussion. Bolton reflected that SMEs may remain “ignorant of the options” because they don’t have time to weigh them up, and therefore the obligation falls on the people who do speak to them: brokers and sales teams.

Goodman backed this with a concrete example: a business that was “absolutely perfect for invoice finance” insisted it needed a loan. A loan might help today, but it wouldn’t support the business’s growth ambition; it needed a revolving working capital solution. The business was choosing the product it had seen most – “all they’ve seen… is a loan” – and that marketing visibility was shaping demand.

This raised the uncomfortable question: who is responsible for education, clarity and product fit? SMEs can’t be expected to become finance experts, especially under time pressure.

What “better” looks like: journey-based finance and visible stepping stones

In the second poll, the audience again leaned toward more financial education for SMEs, alongside brokers evolving into more guidance-led roles and tech improving product matching.

Goodman’s “journey-based finance” concept tackled a structural issue: SMEs often start with small, supported finance (e.g. start-up lending) but struggle to bridge into mainstream banking or more sophisticated facilities. He argued that Community Development Financial Institutions (CDFIs) can act as stepping stones, but awareness is low – “most people… still don’t know [CDFIs] exist.” He contrasted UK scale with the US community finance market to underline the size of the gap and the growth opportunity.

Importantly, he also noted that broker specialisation can itself become a barrier. Many brokers are excellent within a niche – asset finance, commercial mortgages, invoice finance – but SMEs don’t naturally arrive saying “I want asset finance.” They arrive saying: “I want to grow,” or “I need to buy this thing.” The funding journey is cross-product by nature, while the industry remains structured in product silos.

Technology: built for transactions because firms are built for transactions

Finance Connect’s Edward Peck put a pointed question to Jason Hurwitz, sales director Europe with NETSOL Technologies: have we built technology as a transaction engine rather than a relationship engine?

Hurwitz answered candidly: yes, largely because technology reflects operating models and strategic priorities. He echoed the panel’s “silo” diagnosis: the industry has become extremely good at delivering individual products quickly, but has made “painfully little” progress in guiding SMEs holistically through needs.

His key observation: SMEs don’t come asking for products; they come with goals and problems. The missing capability is a structured, accessible needs-analysis pathway that helps them understand what type of finance fits their situation and routes them to the right channel.

“SMEs don’t come to the market saying ‘I want asset finance’… they come saying ‘I want to grow.’”

– Jason Hurwitz, sales director Europe, NETSOL Technologies

Hurwitz argued AI is well suited to do this in plain language, at any time, and to triage SMEs by confidence and complexity, routing some to digital direct lending, others toward brokers or specialist support. But he posed the governance question: “Where does this sit – is it something a public body like the British Business Bank runs, which is agnostic as regards customers, or would a private enterprise take this on.”

Goodman added a practical proof point: he’s already built an AI tool that runs scenarios across multiple lending archetypes and helps with training. That reinforced the theme that the tech capability is emerging quickly – the bigger debate is ownership, neutrality, accountability, and how brokers/lenders actually use it.

Bolton’s quip – “Will they end up looking like check-a-trade?” – captured the underlying idea: could the future be a marketplace where SMEs are routed to suitable, verified providers in a structured way?

Who makes change happen — and why urgency matters

The final section was about action. Peck argued the ecosystem must lead, because the alternative is intervention shaped by people who don’t understand the machine. He pointed to the motor finance redress situation as a cautionary example of what happens when structural issues are not resolved (or are perceived not to be).

The third poll asked for the most important next step. The audience split almost evenly between: Technology platforms enabling journey-based lending & matching (42.9%), and a cross-sector think tank/forum bringing together lenders, brokers, trade bodies, policymakers (40%).

Goodman argued trade bodies serve members (as they should), but system redesign requires a space focused on ecosystem outcomes rather than one constituency. He was also clear that commission isn’t inherently the problem – transparency is – and that fragmented systems make informed borrower choice more important, not less.

Bolton said he would support a cross-sector initiative if it had a clear frame and avoided becoming a talking shop, pointing to prior industry collaboration examples as reasons for optimism.

Hurwitz added a strategic anchor: “technology should always follow the business strategy,” but it can also unlock models that were previously too manual or expensive, potentially recreating a modern “relationship” layer for SMEs using AI plus expert humans.

“It’s clear technology can help create a cross-industry body with advice for SMEs.”

– Jason Hurwitz, sales director Europe, NETSOL Technologies

Closing takeaways from the panel

The panel’s final reflections were strikingly aligned around a few core themes. Steve Bolton summed up the challenge succinctly by pointing out that SME finance is, at heart, complicated and highly siloed. Breaking down those silos – between products, institutions and roles across the ecosystem – will be essential if better long-term outcomes are to be achieved.

For Bolton, collaboration across lenders, brokers and technology providers is the clear direction of travel, with technology playing a critical role in making that collaboration easier and more scalable.

Paul Goodman reframed the issue in a way that resonated strongly with the audience. In his view, the SME finance market is not broken, but fragmented. The industry has made real progress on speed, access and innovation, but key elements such as sequencing, transparency and stewardship have not kept pace. His core challenge to the ecosystem was that finance should be designed so that when a business engages with the system, it is in a stronger position twelve months later than when it started. The measure of success is not just whether funding is delivered, but whether it genuinely strengthens the underlying business.

“The SME market is not broken, but it is fragmented and transparency and standards have not kept pace. We as an industry should be designing credit so that once we touch a business, we can ensure it is stronger 12 months later.”

– Paul Goodman, chair of Goodman Corporate Finance

Jason Hurwitz brought the discussion back to the imbalance between supply and demand in SME finance. He argued that the industry has invested heavily in improving the supply of funding – making it faster, broader and more accessible – while paying far less attention to the demand side. Too many SMEs still fear finance or do not understand how it can be used as a tool for growth, and certain groups of business owners remain disproportionately discouraged from engaging with lenders at all. Addressing this confidence and education gap, alongside continuing to improve the mechanics of lending, was his key takeaway for creating a healthier and more inclusive SME finance ecosystem.

Given that independent research shows just under half of SMEs report no interest in accessing finance over the coming year that is a challenge, but the panel agreed tackling the demand side of the equation was the way forward.

“The SME lending market is at a pivotal point – and the prize for those who get it right is large.”

– Edward Peck, CEO, Finance Connect

“The government has made it clear SMEs are fundamental to plans for growth, and we as an industry can provide the funding for that,” was how Edward Peck, Finance Connect CEO, summed up the situation.

“Our webinar discussion made clear that there is a real push for better collaboration between SMEs, lenders, brokers and policymakers. Creating the framework so that this can happen is critical, and I would urge anyone who has ideas about how to do this to get in touch and share their views. At Finance Connect we stand ready to support the industry to be the best it can be for the SME sector.”

Watch the full webcast on-demand here.