In Europe, SMEs form the backbone of the economy: a 2019 study by the European Commission, highlighted that there were over 25 million SMEs across the region, representing approximately 99% of total businesses in the world’s largest trading bloc. SMEs also represent a significant form of employment in the region, hiring 97 million employees, totaling more than 67% of the European workforce. The above figures underline uncontestable economic impact of SMEs, who add approximately €4 trillion to the economy each year.

Despite being a key operational concern, the largest business segment of the European economy struggles to adequately access financing, which is essential to help companies expand, remain competitive, and in some cases, stay afloat. Financing is used for inventory & working capital, fixed investments, developing and launching new products or services, hiring and training employees and refinancing or paying off obligations, amongst others. A 2020 survey by the European Commission showed that approximately 1 in every 4 European SMEs faces some form of problem when applying for a bank loan to fund their operations. The Netherlands was the toughest country for SMEs to access a loan, with 43% of SMEs reporting difficulties, whilst the UK and France seemed to be the least problematic with 13% and 14% respectively.

A mismatch between financing demand and supply is part of the reason behind the aforementioned struggle. On one side, this is due to the high risk profiles of borrowers who cannot meet lending requirements. In parallel, it is caused by lender’s strict requirements, high costs and a lack of a universal credit rating system. Interestingly, a 2021 report by the European Central Bank showcased that while Loan Demands stood at approximately €1400 billion, the available Loan Supply was only €1000 billion, leaving a significant financing gap of €400 billion. Ultimately, approximately 30% of funds demanded by SMEs are left completely unaddressed, leaving a sizeable portion of SMEs in a potentially vulnerable position.



Capitalizing on the financing mismatch, a number of new digital players such as Funding Circle (UK), Spotcap (Germany), Floryn (Netherlands) and Lemonway (France) have stepped up across Europe to address the supply gap, developing accessible lending propositions that are tailored to SMEs. Specifically, by revamping the lending process, the following propositions have made digital SME Lenders particularly attractive:

  • Seamless Digital Application Process: rather than a time consuming application process that requires a lengthy list of documents, alternative lenders offer a simple, selfservice application through an e-portal which only requires a few simple inputs. The rest of the necessary data is automatically collected by the lender who digitally prescreens and benchmarks the borrower’s application. The process can be completed in as little as 2 minutes, all from the comfort of one’s laptop or phone.
  • Flexible Terms & Conditions: to achieve the goal of offering accessible loans, digital lenders have adopted customizable and flexible terms and conditions. Examples include being able to easily alter the loan term duration, and the ability to repay the loan prior to maturity at no extra cost, to best suit the needs of the applicant.
  • Lean Operating Model: to simplify the external and internal processes, digital SME lenders have developed largely automated processes which allow for efficient operations and quick turnarounds, allowing customers to receive loan offers in a matter of hours, rather than weeks. Additionally, the borrower’s decision is digitally streamlined, and, upon acceptance, data is automatically monitored and centralized to offer real time reporting

Aside from offering significantly more accessible loans to SMEs, new digital lenders have succeeded in taking a customer centric approach, developing propositions that are tailored to their needs rather than simply disbursing the required financing amounts. In addition to an easy, quick loan application with fast decisioning & payout, flexible terms and conditions, simple loan management and competitive pricing, SMEs have access to a broader suite of services such as integrated banking services, accounting solutions and financial insights and advice.   

There is no single correct way to become a successful SME lender, through different operating models and propositions, several SME lending platforms have gained sizable traction across Europe. For example October, a French SME lender founded in 2014 who has €0.5 billion in loan facilities, has taken a marketplace approach, offering instant eligibility checks for loans of up to €5 million. Oaknorth, a fully licensed bank founded in the 2015 in the UK, on the other hand, has €5.0 billion in loan facilities and offers digital lending to UK companies while also white-labelling its platform to other financiers. Another approach is that of Italian based Credimi; founded in 2015 it holds €1.6 billion in loan facilities and screens loan applications for Italian enterprises based on company VAT-number alone before offering loans financed through a mixture of their own funds, and those of institutional investors.



Thus far, new digital lenders appear to have developed a successful solution that addresses SME needs and, at least in part, one that bridges the financing gap that the backbone of the European economy faced. However, these players face some important challenges to ensure a sustainable future of digital SME lending. Firstly, as the market matures, proper differentiation of propositions is key to retain market share and to ensure that pricing doesn’t become the sole deciding factor for customers. As competition increases, it is important that lenders manage yield rates adequately in order to maintain a high quality of loan books and to ensure sustainable returns. Lastly, as young credit models have yet to show their long-term robustness, lenders, whose risk management is yet to be tested in situations of economic downturn, may be subject to high defaults.

In conclusion, while the financing gap for SME lending is yet to be fully resolved, the innovative, customer centric approach that new digital SME lenders have taken, is a welcomed step forward and a clear example of how fintechs continue to disrupt practices which are, in many respects, outdated. Whether all new players will stand the test of time is yet to be determined, however, they are setting a new benchmark for the market, one which incumbents are noticing and gradually following suit.



Fincog is a strategy consulting group specialized in fintech; by combining the right mixture of knowledge in strategy and implementation with our extensive hands on experience and our SME Lending experts, we are here to support you in the end-to-end development of your digital banking initiatives.

If you would like to get in touch with us to see how we can best help you and your organization in your fintech endeavor, do not hesitate to reach out to: