Small loans can be key for entrepreneurs

The State of Small Business Britain report from Enterprise Research Centre, which was published earlier this year, gives us a clear insight into the entrepreneurial spirit found across the country, but also the frustrations holding those business founders back from taking the next step.

The report summarises findings from a host of key business surveys, and noted that more than a third (36%) of working-age adults in the UK are now starting, running or planning to run their own business within the next three years. That’s the highest level recorded since at least 1999, when the Global Entrepreneurship Monitor survey began, suggesting the drive to form new SMEs is heading in an encouraging direction.

However, this is being undercut by what the report describes as a “declining” entrepreneurial ecosystem. Factors like entrepreneurial education and government policy were pinpointed as acting as a brake on ambition and growth, as was tellingly - access to finance.

For any lender active in the commercial space, this should serve as a wake-up call.

Serving different business needs

Atom runs a quarterly poll of commercial brokers, the SME Pulse, to gauge their experiences and viewpoints on the state of the market. And one of the more encouraging aspects of recent editions has been the improving landscape around access to finance.

In the first edition of the survey, run in Q3 2023, 42% of respondents said they were finding it difficult to access finance for their clients, but by Q4 2025* this had dropped to just 11% of commercial brokers. As the market has become more competitive with challenger banks and specialist lenders reaching a critical mass, brokers and their clients have benefited from a better range of competitively-priced options.

However, there remains a subset of borrowers who don’t enjoy that same level of competition, and may see the lack of options open to them as a brake on their ambitions.

The small loans challenge

If a business borrower is looking to access external funding of upwards of £250,000, then chances are they have plenty of options open to them. As brokers will know, there is no shortage of competition in this space for clients who can meet the lending criteria.

The situation is rather different when the sums involved are more modest, however. If a client is aiming to borrow in the £100,000 to £250,000 bracket, there are far fewer lenders from which to choose. What’s more, those who are active in this space often impose further impediments before a deal can be brokered, for example for the borrower to be an existing customer or to have significant ancillary business with the lender.

We polled brokers about the small loans landscape last year, and the findings highlighted not only that there is sizeable interest for smaller funding, but that the current market is doing a mediocre job in serving potential borrowers. More than half of the brokers we spoke to (53%)** said that more than a quarter of the enquiries they received were from those looking to borrow between £100,000 and £250,000, with a similar number pointing to the lack of active lenders in the small loans space as the primary barrier to funding faced by their SME clients.

The strength of that feedback drove our move to reduce the minimum loan size on commercial loans, initially to £200,000 and then £100,000. The response has simply highlighted the level of demand for smaller loans, with funding of below £250,000 accounting for a significant portion of our enquiries and applications. It’s clear the demand is there; the challenge is for the lending community as a whole to respond to it.

Why lenders are overlooking small loans

The disconnect between the high demand for small commercial loans and the lack of lender enthusiasm is a growing frustration for brokers and SMEs alike. While one might expect high demand to drive competition, the smaller loan space remains surprisingly stagnant. It would be easy to suggest that part of this may well be associated with prestige; lenders prefer to trumpet landmark, multi-million-pound deals that capture the imagination, even if a modest injection of capital would be more transformative for the individual business involved.

However, the primary hurdle is often hidden in the lender’s back office. Many traditional institutions still lack the modern technology infrastructure and automated scalability required to process smaller loans efficiently. Without a streamlined digital journey, the resource required to underwrite a £100,000 loan is virtually the same as those for a £10,000,000 deal. This creates a significant ‘bang for buck’ dilemma, where lenders feel compelled to focus their time on larger deals to hit their volume and income targets more quickly.

This resource-heavy approach leads many lenders to effectively ignore the clear and present need for smaller funding, erecting barriers for ambitious entrepreneurs rather than removing them. The truth is that there is a clear and present need for smaller loans. For a lender, a small loan might just be another line on a ledger, but for a business, it can be the catalyst for future prospects and long-term growth. If the industry is serious about supporting the backbone of the economy, we need to see a more competitive landscape where technology is used to make small-scale lending both viable and valued.

To discuss how we can assist you and your clients, you can meet our regional business development team here.

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