The Small Business Finance Markets Report[1], recently published by the British Business Bank, shines a spotlight on the realities of SME funding.

We spoke to Pegasus Funding Solutions MD Richard Olsen about the report findings, and what they mean for UK SMEs today. 

In this report, The British Business Bank suggests that many SMEs are borrowing to maintain stability rather than to fund growth. What are you seeing in the businesses you’re working with?

This absolutely reflects what I am seeing on the ground.

A lot of SMEs are using funding as a short-term fix to cover cash flow gaps or manage pressure, rather than as a strategic tool to support growth. With this approach, funding becomes a sticking plaster rather than part of a longer-term plan.

The challenge for most businesses is timing. Many owners and business leaders can see a cash flow issue coming, but they hold off on doing anything about it. By the time they decide to look for funding, they are under time pressure. Because they now need funding quickly, their options are instantly limited. The most cost-effective solutions can take six to eight weeks to arrange. If you do not have that time, you are going to have to look at faster funding options, which are going to be more expensive.

In practical terms, this has very real consequences. We recently worked with a client who had early visibility of a funding need, but they kept delaying taking action. Because of the inevitable time pressures that then arose, they ended up paying 17.5 percent interest and a £3,500 fee. If they had talked to us earlier, we would have been able to secure that funding at around 8.4 percent with a £500 fee.

When this happens, it’s frustrating all round. Forward planning is invaluable and I advise clients to talk to me early. First, we’ll look at your cashflow and your pipeline. Then we take a long-term look at your funding needs, avoiding hasty and expensive last-minute decisions.

With challenger banks and alternative lenders now dominating much of the SME finance market, how can business owners avoid making mistakes when choosing finance?

The rise of challenger banks and alternative lenders has created more choice, which is a good thing. But it has also made the market more complex, and in some areas less transparent.

One of the biggest issues is the trade-off between speed and cost. Faster lenders tend to charge more because their own cost of funds is higher. That is not inherently a problem, but it becomes one when businesses do not fully understand what they are paying.

We also see pricing presented in ways that obscure the true cost. For example, focusing on monthly repayments rather than the underlying interest rate or the total cost of borrowing.

Another concern is the role of brokers in what is still largely an unregulated space. In some cases, commission structures can influence the rate a business is offered. Unfortunately, some brokers see this as a route to increase their commission without their clients realising. And of course, this can directly affect the cost of funding.

Our transparent approach to fees means we never do this, but business owners need to be aware that not everyone is so scrupulous. The key is to ask the right questions. Businesses should be asking how a broker is paid, whether their commission is affecting the interest rate for their funds, and what the full cost of the funding is. They should also be comparing multiple options, not just taking the first offer. If you are working with someone who isn’t being open about their commission, that’s a red flag.

This is where working with a transparent, qualified intermediary makes a real difference. Recent data from the National Association of Commercial Finance Brokers highlights the growing role of broker-led lending in helping SMEs access the right funding. If you have questions about who you’re working with, asking for their accreditations and qualifications and scrutinise the details around their commission. Don’t proceed if you have any doubts – talk to me instead.

What happens when SMEs rely on overdrafts or credit cards, as highlighted in the report?

In my experience, credit card debt is a significant issue, and I’m seeing a growing reliance on business credit cards.

These are heavily marketed, often with incentives like cashback which can make them seem like an attractive option. We’re used to seeing credit cards marketed for personal use, but the consequences for business use are not the same. They are an expensive form of borrowing, especially if balances are constantly carried forward.

A key consideration is time. When used carefully, credit cards can be a useful short term tool. When this slips into longer term reliance, problems arise. Businesses can lose visibility of the true cost of their borrowing and end up layering multiple forms of expensive debt. That can restrict future funding options and put pressure on cash flow.

The priority should always be to step back and to get credit card debt under control. Then you need to look at the overall funding structure for your business, rather than relying on quick-fix or fragmented solutions.

What can business leaders do to strengthen their funding readiness before they actually need finance?

Funding readiness is about putting yourself in a position where you have choice. That means starting conversations before you are under pressure.

There are a few practical steps every business leader should be taking:

• Develop a clear understanding of your cash flow, including seasonality and pipeline visibility
• Review your existing borrowing and the true cost of that finance
• Be open and transparent about your financial position, including any historic issues
• Build relationships with a trusted adviser who can guide you through the options.

At Pegasus, our approach is consultative. We start with a detailed conversation to understand the full picture, then structure solutions that often combine different types of finance, for example asset finance, invoice finance and a smaller working capital facility.

This blended approach can deliver a more cost-effective outcome than a single large loan, while also aligning more closely with how your business operates.

Just as importantly, we support clients through the entire process and maintain an ongoing relationship. Funding should not be a one-off transaction. I put energy into maintaining relationships with my clients. By offering sustained guidance and partnership, I can support their long-term growth goals.

Final Thoughts?

The British Business Bank report highlights that access for SME funding is improving, but there are still very real challenges that can cause long-term issues for businesses.

For SMEs, my advice is clear. Take advice, start early and think long-term. It’s a winning combination that moves funding choices from a source of pressure to a driver of growth.

Whatever your funding challenges, Pegasus Funding Solutions can help. Contact us for a confidential conversation on finding the right financial solution for your business.

[1] https://www.british-business-bank.co.uk/about/research-and-publications/small-business-finance-markets-report-2026