iwoca’s latest SME Expert Index shows alternative & challenger lenders now leading SME finance
New research from iwoca shows alternative lenders are surging ahead in the SME finance market, as high street banks lose their foothold among growth-focused businesses.
According to iwoca’s latest SME Expert Index, almost two thirds (61%) of SME finance brokers report submitting over half of their loan applications to alternative lenders in the last four weeks. The shift underlines a change in business attitudes, with demand for modern, tailored financial solutions now outpacing traditional banking options.
Speed of decision-making is increasingly important for time-pressed SMEs, with 73% of brokers now citing it as the key driver behind the shift away from the high street — up from 63% last quarter.
iwoca SME Lending Thermometer score
This quarter’s SME Lending Thermometer, first launched in Q1 2025, provides a pulse check on SME finance appetite across all UK lenders. For Q2 2025, it sits at 5.6, where 1 indicates extremely low demand for finance, and 10 represents extremely high. This marks an increase from the previous quarter, where the score was 5.23.
The SME Lending Thermometer score is derived from a weighted average of broker descriptions of their SME clients’ demand for finance over the last four weeks — ranging from ‘very low’, through ‘normal’, to ‘very high’. In Q2 2025, 41% of brokers described SME demand for finance across all lenders as high, compared to 26% who said demand was lower than normal.
Appetite for alternative lending surges
More than seven in ten (71%) brokers agree that mainstream banks are pulling back from SME lending, reflecting a perceived loss of appetite for small business finance on the high street. In response, 65% of brokers say that they are steering clients toward non-banks for applications more than £100,000.
Colin Goldstein, chief commercial officer, UK at iwoca, said: “We’re at a real turning point for SME finance. More than ever, small businesses need quick and flexible funding, and they’re increasingly turning to alternative lenders to get it. The pace of this shift shows just how much traditional banks are struggling to meet the changing needs of the UK’s small businesses.”