March 17, 2022

Loans, fees and Covid: The biggest finance challenges for SMBs in 2022

Could small businesses be an engine for economic growth after Covid?


5 min read

Sponsored by

Banca AideXa
Credit: Banca AideXa

When we think of a business, our minds often drift to massive warehouses, tall office buildings and millions of euros. But the backbone of Europe’s economy isn’t your Klarnas, Deliveroos and Revoluts — it’s the small and medium-sized businesses/enterprises (SMBs/SMEs) that don’t often make headlines.

According to the European Commission, SMBs make up 99% of all businesses in the EU, employing around 100m people and accounting for more than half of Europe’s GDP. 

SMBs add value to every sector of the economy, from climate tech to healthtech. But the pandemic hit them hard, with 70% facing dropping revenues. So how can they recover?


Banking is expensive — and it sucks up your time

Roberto Nicastro is chairman and cofounder of Banca Aidexa, an Italian neobank focused on sole traders and companies up to €5m. He says — despite challenges — Italy is still “a country of small businesses”.

“In a country like Italy, you’re talking about close to 7m companies, lots of them are one-man operations,” he tells Sifted. “Many people in Italy prefer to go their own entrepreneurial way, rather than be part of a larger organisation… it provides major flexibility.” 

Complex banking and finance make businesses lose a precious amount of time

But the cost of freedom in business is high. An evergreen struggle for SMBs is pricey banking services, not to mention the valuable time and energy they suck up.

“SMBs often struggle with the restrictive and opaque services and prices offered by traditional banks,” says Alexandre Prot, founder and chief executive of challenger bank Qonto. “Complex banking and finance make businesses lose a precious amount of time.”

Prot adds this time should really be used to focus on delivering the core of their business to their customers. Stats back this up — Nicastro says Banca Aidexa surveys have shown entrepreneur’s biggest need is to save time.

“We have customers who are plumbers, house movers, restaurant owners, freelance journalists, taxi drivers, graphic designers, coders,” Prot says. “All these individuals and businesses desperately need to spend less time on financial admin, and more time delivering to their customers.” 

Businesses desperately need to spend less time on financial admin, and more time delivering to their customers

One solution to this is to say goodbye to big banks and hello to free digital banking, says Helen Bierton, chief banking officer of neobank Starling Bank.

“We have close to half a million small business and sole trader customers,” she says. “We own our software, we built it, meaning we can quickly and securely meet customer needs quicker than our predecessors, and at no cost.” 

It’s hard to get a loan

Nicastro says this time and money factor makes it specifically difficult for SMBs to get a loan. 

“Clearly size and financing don’t get along too well, since a credit process decision has some fixed costs, almost irrespective of if you’re lending £10k or £1m,” he says, adding this is so because it’s not very economically efficient for legacy banks to lend out small amounts of money. 

“The traditional credit process is very lengthy, time-consuming, bureaucratic and entrepreneurs have to bring lots of paper to the bank to receive the credit decision.” 


According to Nicastro the “time to yes'' — or the time it takes to know if you’ll get credit or not — and the “time to cash” — the time it takes for the loan to reach your bank account — can be up to two months for SMBs. 

The traditional credit process is very lengthy, time-consuming [and] bureaucratic

To slash down these times, Banca Aidexa developed a scoring system using AI and an easy-to-use onboarding system.     

“We started from this problem and we devised a way to give an answer in 20 minutes and without the entrepreneur having to produce lots of documents,” he says. “There’s no guarantee whatsoever that the answer is a yes, but you will see the answer immediately and you don’t have to waste time.”  

The Covid hangover

But even with a loan, the economy due to coronavirus has been harsh on SMBs. A McKinsey study of 2,200 SMBs from France, Germany, Italy, Spain and the UK showed one in five founders were concerned they might have to default on loans or lay off employees thanks to the pandemic. 

Nicastro says this won’t go unnoticed by banks. “It’s not been easy,” he tells Sifted. “The 2020 financials were very problematic so if a bank is making a decision based on 2020 financials very often they will not consider them because it was an exceptionally bad year.” 

But it’s not all doom and gloom, as Nicastro says mechanisms such as open banking — a service that can provide an overall view of financials — can help. And Prot says the pandemic pushed SMBs were prompted to innovate and digitise

“Covid-19 showed that businesses could handle their finances via a device with its onset acting as a catalyst for the switch to digital services,” he says. 

Small businesses need solutions that integrate

For Bierton, a struggle for small businesses is simply keeping up — with markets and customers. 

“Today’s SMB market is challenging,” she says. “Business owners are having to flex to accommodate changing market conditions and meet ever-changing customer demand.”

To help with this, Bierton says customer service plays an important part, alongside having solutions that integrate with other tech and services. 

“Our 24/7 customer service with real humans, all based in the UK, allows us to personally support our customers and their business needs,” she says. “We bolster this offering with lots of tools, including spending analytics, lending services and free in-app integrations with our Marketplace partners such as QuickBooks, Zero and Slack.”

While Banca Aidexa is focusing specifically on SMBs, Nicastro adds open banking will allow the bank to offer the services of other fintechs. 

“We will be offering, through open banking, access to other fintechs and other services,” he says. “We want to be laser focused on what a small business needs.”