The Intermediary – February 2026 - Flipbook - Page 14
SPECIALIST FINANCE
In focus
Predatory SME
lenders signal
system failure
P
redatory lending has
been in the headlines
recently, with The
Times revealing that
small to medium-sized
enterprises (SMEs)
are increasingly trapped in cycles of
expensive short-term loans. But in a
funding landscape where traditional
banks’ rigid systems shut out strong
SMEs that don’t fit the tick-box
model, it’s understandable that some
entrepreneurs explore more restrictive
options. The fact that ambitious
businesses feel they need to consider
these loans is a warning sign of a
system under strain.
Since the 2008 financial crash,
hight street banks have grown
increasingly reluctant to fund SMEs
– a trend intensified by the Covid-19
pandemic, global instability and
stricter compliance frameworks.
Traditional lenders’ slow approvals,
rigid structures and blanket refusals
of entire sectors mean that ambitious
businesses are missing out on
opportunities and losing momentum.
And this comes at a time when
inflation, taxes and government
policy are squeezing SMEs tighter
and tighter.
The result? Business owners feeling
backed into a corner are taking on
stacked loans with unclear repayment
terms and unsustainable costs. It’s a
stark picture of a broken SME funding
landscape where an overreliance on
rigid systems and red tape lets banks
shirk their responsibility to support
strong businesses.
This reluctance from traditional
lenders is oen labelled as risk
avoidance. But when strong, viable
businesses are rejected over trivial
paperwork, or whole sectors like
hospitality are blacklisted, it’s obvious
the system is not fit for purpose. The
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The Intermediary | February 2026
problem isn’t that SMEs lack ambition
or opportunity – far from it.
Across the country, there are
exciting entrepreneurs with bold plans
who simply need the right financial
partner to move forward. The real
challenge is that access to responsible
capital has not kept pace with the
urgency of business reality. Let’s
be clear: SMEs aren’t underfunded
because they’re high risk. They’re
underfunded because the system is too
rigid to see their potential.
Remaining responsible
Banks hiding behind process and
paperwork comes up all too oen. One
Reward client had their high street
lender pull funding for a development
project because the property was
on the proposed HS2 line, despite
the scheme being cancelled by the
previous Government. With planning
permission for the renovation in
place and having sought legal insight
to understand the risks, we could be
pragmatic about the situation. It was
clear that in the unlikely event HS2 is
reinstated, the risk could be managed
collectively with the client.
Inflexible systems saw the situation
as too complex, but we worked
through to a straightforward solution,
supporting the business to complete
the project. That deal only worked
because we could see the full picture:
NICK SMITH
is group managing director
at Reward Funding
a client with planning permission,
legal clarity and a time-sensitive
window. Banks saw a red flag. We saw
a viable plan.
With banks stepping back, some
less responsible operators have
rushed in to fill the gap, but too oen
they lack the structure, clarity, or
long-term thinking that sustainable
funding demands. Running a business
in today’s uncertain climate requires
finance to be fast and flexible.
However, this shouldn’t come at the
cost of transparency, responsibility, or
long-term viability.
Stuck between rigid banks and
unsustainable alternatives, flexible
funders are the solid option that can
help SMEs avoid facing impossible
choices. Behind each funding request
is a determined business owner
building the economy’s future,
and that’s something we should all
get behind.
Traditional lenders’ overcautious
instincts might seem sensible at face
value, but if responsible funding only
shows up aer the damage is done,
we’ve missed the point. The question
is: who’s going to back ambition before
it turns into crisis?
Full of drive and conviction, SMEs
are the lifeblood of our economy, and
they deserve flexible funding to fuel
their goals. ●
When mainstream funding goes dark, SMEs are left searching for a clearer signal
