The partnership economy - How collaboration drives SME finance forward

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Collaborative models are redefining SME finance in the UK, with embedded partnerships enabling faster, more inclusive access to capital.

 

Dan Sinclair-Taylor is Strategic Partnerships Lead at YouLend.

 


 

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For years, traditional banks have stepped away from supporting small and medium-sized businesses. In response, challenger and specialist lenders have stepped in to fill the gap. They moved quickly, stayed focused, and were ready to meet demand.
The shift has been impossible to ignore.

Today, challenger banks make up 60% of all business lending in the UK, compared to twenty years ago, when the four largest legacy banks provided 90% of loans to small and medium-sized businesses.

Although the high street banks are looking to make a comeback, and the latest UK Finance data shows that lending is at its highest since 2022, they still face a long road ahead to regain lost ground.

What we are seeing now is more than just a shift in market share. It is a structural transformation in how capital reaches small and medium sized businesses. At the centre of this change is a strategic collaboration between traditional banks working to stay relevant, neobanks and challenger banks redefining what lending can look like, and specialist financing platforms built around the needs of small and medium-sized businesses from day one.

 


Meeting SMEs where they are 

Due to legacy infrastructure and regulatory processes, it is well understood that traditional banks struggle to economically serve micro and small businesses. This is seen particularly in the working capital space where traditional banks are poorly placed to support early-stage or asset-light businesses.

This gap has opened the door for new players such as embedded finance platforms to step in and close the SME funding gap by offering faster, smarter solutions right where businesses need them.

And it’s not just banks. E-commerce companies, payment providers, and tech platforms are all embedding finance directly into their customer journeys—meeting SMEs exactly when and where it matters most. Think of a seller using Shopify or a small business taking payments through Dojo. These platforms now offer financing as part of the everyday tools their customers already use.

Through partnerships with specialist enablers, platforms can launch full, multi-product financial solutions quickly and without losing focus on their core business proposition. This ‘partner-accelerated’ build strategy speeds up time-to-market, all while the enabler handles infrastructure, compliance, operational costs and risk management.

 


The advantage of embedded partnerships

This new collaboration model becomes truly transformative once data comes into play. SME platforms possess real-time operational data such as sales trends, payment histories, and customer behaviour patterns, which legacy financial institutions do not have access to or struggle to interpret effectively. This data richness powers more accurate risk assessment and extends financing to businesses often excluded by traditional finance providers. It can even enable "pre-approved" financing offers, without pulling on traditional credit bureaus, giving SMEs the certainty that funding is available should they need it.

Challenger banks deserve particular credit in this evolution. They’ve redefined what financial services can look and feel like — prioritising user experience, simplicity, and seamless integration. Their partnerships with embedded finance providers create multiplier effects: better access, better products, and a stronger, more resilient SME economy.

 


It takes a regulated ecosystem 

As embedded finance matures, it’s clear that strategic collaboration is the way forward. Policymakers now have a pivotal role to play. The success of today’s partnerships shows that innovation and strong safeguards can go hand in hand.

Big banks are refocusing on the SME market, and challenger banks are headfirst in expansion. A proportionate regulatory approach will only accelerate this momentum, unlock more growth, more resilience, and more support for the real economy.

The UK’s SME banking revolution is thriving because of partnerships. The future isn’t about choosing between innovation and protection. It’s about working together to deliver better outcomes for businesses at every stage.
 

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