How do we close the funding gap?

4 ways to make SME funding simpler and smarter

SME funding has never been more abundant. Yet for many founders, securing the right capital still feels harder than ever.

Why? Because a perfect storm of high interest rates, political uncertainty, and economic headwinds means every financial decision carries more weight. At the same time, the funding landscape has become crowded and fragmented. More products and providers should make life easier — instead, they’ve created confusion.

Our research shows SMEs are more overwhelmed than ever by the sheer range of options available. Many don’t even realise what’s open to them. The result? Missed opportunities for investment and lost chances to accelerate growth.

This is what we call the funding gap — the growing disconnect between the capital businesses need and the capital they can realistically access.

In this article, we’ll look at:

• What the funding gap is
• Who it impacts most
• What’s causing it

And four ways we can collectively help close it

What is the funding gap?

Put simply, the funding gap is the mismatch between ambition and access.

Capital exists. Lenders are willing. But too many scaling SMEs can’t cut through the noise to find the right partner, product, and timing.

Start-ups benefit from accelerators, angels, and seed funds. Established corporates attract institutional capital. But those in the “missing middle” — fast-growth SMEs scaling from a few million in revenue — are underserved.

They’re too advanced for early-stage support, yet not large enough for mainstream private equity or bank appetite.

Two common factors make traditional lending particularly tricky for these businesses:

1. Reinvested growth over profit
   Many scaling businesses have been ploughing profits back into growth rather than generating historic profits. Structuring debt repayments against historic accounts doesn’t reflect their true potential.
2. Limited or no security
   These businesses often lack tangible assets to pledge, so they need lenders willing to underwrite funding against future cash flows rather than past performance.

As lenders, we see this daily. The capital is out there — it’s just not reaching the businesses that need it most.

Who is most impacted?

The funding gap bites hardest for:

• Scaling SMEs in the “missing middle” – They’ve outgrown start-up finance but aren’t yet big enough for institutional funding
• Founder-led businesses – Leaders often lack the time, networks, or specialist knowledge to navigate the market
• Businesses without security – Fast-growing, asset-light companies need lenders who can lend against future cash flows rather than historic accounts
• Underrepresented founders – Women and minority-led businesses face additional barriers due to historical underrepresentation in financial networks

The common thread? These businesses don’t just need capital — they need clarity, connections, and confidence.

What’s driving the gap?

Several forces combine to widen the gap:

1. A fragmented landscape

More lenders, products, and advisors should make funding easier, but instead it overwhelms leaders. Even the best available resources can confuse founders who aren’t sure where to start, leaving them uncertain about which funding options are truly right for their business.

2. Traditional lending criteria

Many lenders focus on historic profits and security. For fast-growing SMEs that reinvest in growth or lack tangible assets, these criteria are a poor fit.

3. Emotional barriers

Founders are naturally protective about financial decisions. Fear of rejection and lack of fundraising experience make many hesitant to engage.

4. Bias in networks

Advisors and intermediaries often push what they know — equity over debt, or vice versa — creating echo chambers where only certain funding models are considered.

5. The story behind the numbers.

Given the difficult times SMEs have faced over the past few years, there’s often a deeper story behind their financials. Understanding the business case, growth strategy, and context is crucial to supporting a funding proposal. A tick-box or rigid credit policy approach simply doesn’t work here — it requires a funder with the expertise, insight, and time to fully grasp the situation and the company’s strategy, not just the historic accounts.

6. The shift from historic to forward-looking funding

Traditional bank funding relies on past performance and tangible security. Scaling SMEs increasingly need funding arrangements based on forecast cash flows. The key is the ability to demonstrate performance through numbers and provide confidence in the business’s ability to meet forecasts. Many fantastic businesses are well-positioned for growth but struggle to articulate their plan clearly or support it with thorough financial information. Bridging this gap requires both founders and funders to embrace a forward-looking mindset.

The result? Businesses are not just underfunded; they’re misinformed and underserved.

Four ways to close the gap

Closing the funding gap requires effort from all sides — lenders, founders, and advisors. Here are four practical steps:

1. Increase access to information and networks

Founders need clearer routes to the right funding at the right time. While access to information has improved, it’s still fragmented and often skewed towards equity or bank-led products.

Trust matters here. Formal platforms help, but the most powerful influence comes from peer networks, mentors, and advisors. Diverse networks create better decisions and expose founders to alternative funding models, such as lenders willing to fund against future cash flows rather than historic accounts.

2. Improve funding literacy

Education must go beyond listing funding options. Founders need tools to assess which products fit their stage, growth profile, and ambitions.

Too often, leaders know only the routes they’ve already seen. Improved literacy means learning how to evaluate options, not just what exists. That includes understanding debt structures that accommodate reinvested growth, asset-light businesses, and forward-looking performance.

3. Shift founder mindsets

Fundraising shouldn’t be about appearing to know it all. The biggest risk is not knowing what you don’t know.

Lenders respect curiosity — provided it comes with preparation. Founders who approach fundraising as a learning process, with data and a clear purpose, are far more likely to get results. Starting early is key: lenders need time and information to help.

4. Encourage more collaboration

This is the single biggest change we’d make tomorrow: make it easier for businesses to reach lenders — and for lenders to be transparent in return.

The problem isn’t being told “no.” The problem is being strung along without clarity. Lenders should be upfront about who they can support, and quicker to refer opportunities they can’t.

At Growth Lending, our policy is simple: always give something back. Even if we can’t fund a deal, we aim to offer an introduction, recommendation, or alternative path. Over time, this builds a stronger, more collaborative ecosystem.

Final word

The funding gap won’t close overnight. But with clearer information, better networks, improved literacy, and genuine collaboration, we can make it easier for ambitious SMEs — including fast-growth, asset-light businesses — to find the right funding and unlock the growth they’re capable of.

If you’re interested in collaborating to help close the funding gap, we’d love to talk. Book a call with our lending team and let’s see how we can support your growth journey.