Banks continue retreat from SME lending as funding gap widens

Banks are continuing to scale back lending to small and medium-sized enterprises (SMEs), contributing to a widening funding gap in the working capital market.

Recent developments across the sector show traditional lenders becoming more selective in SME exposure, driven by cost pressures, regulatory constraints and risk considerations. The trend has already been reflected in the withdrawal or scaling back of invoice finance services by some major banks.

As a result, alternative finance providers, including invoice finance firms, factoring companies and private credit funds, are stepping in to meet demand. These providers are increasingly offering receivables-based solutions that allow businesses to unlock liquidity tied up in unpaid invoices.

For SMEs, the shift comes at a time of continued pressure on cash flow, with late payments and extended payment terms placing additional strain on working capital.

The changing landscape is reshaping the competitive environment, with non-bank lenders gaining market share and playing a larger role in SME financing.