The pullback from SME lending
Across developed and emerging markets, small and medium-sized enterprises (SMEs) are facing a familiar barrier: access to growth capital. Traditional banks are tightening credit, constrained by regulation, risk appetite and the rising cost of capital. The result is a widening SME funding gap, a shortfall now measured in trillions globally.
As banks step back, private investors and private credit managers are filling the void. Through structured, asset-backed lending and bespoke financing, they are fuelling expansion for companies that would otherwise stall.
For professional investors, the trend represents a major shift: an opportunity to access secured, yield-generating assets in a market once dominated by commercial banks.
Why banks often won’t lend
Regulation and capital requirements
Since the global financial crisis, bank lending has been shaped by one overriding factor: regulation.
Frameworks such as Basel III and IV require banks to hold higher levels of capital against perceived riskier exposures including SME loans. That has increased the cost of extending credit to smaller companies, especially those without substantial balance-sheet assets.
In practice, this means many banks favour corporate or mortgage lending, where collateral is clear and risk-weighted assets are lower. SMEs, particularly in service or technology sectors, often fall outside that profile.
Even where banks are willing to lend, the process is slow, document-heavy, and designed for risk avoidance, not growth.
Risk appetite and business model
Large banking institutions prefer predictable, repeatable business. SME lending is bespoke, illiquid, and relationship driven. It requires credit officers who understand niche industries, cash-flow volatility, and the operational realities of smaller firms.
For many banks, that complexity does not align with their centralised, standardised operating models.
Collateral and security
Banks are most comfortable when lending against tangible assets such as property or inventory. Many modern SMEs operate in asset-light industries digital services, consultancy, software, logistics. These businesses may generate strong cash flow but lack physical collateral, making them ineligible under traditional banking criteria.
The impact on SMEs
The consequences are visible across markets.
- Growth bottlenecks. Businesses delay expansion, equipment purchases or market entry because capital is unavailable.
- Working-capital strain. Limited credit lines reduce liquidity and flexibility.
- Missed opportunities. Contracts go unfulfilled and innovation slows.
- Regional disparity. In developing markets, SMEs often rely entirely on informal finance or expensive short-term debt.
The World Bank estimates the global SME credit gap exceeds $5 trillion. Even in mature economies such as the UK, over 40 percent of SMEs report difficulties securing growth financing.
This structural shortage creates a dual challenge and a clear investment theme. Economies need flexible credit; investors seek stable, asset-backed yield.
How private credit steps in
The rise of private markets
Over the past decade, private credit has evolved from a niche strategy into a mainstream asset class. Institutional and high-net-worth investors are allocating capital directly into private lending opportunities from corporate debt and infrastructure finance to asset-backed SME loans.
Unlike banks, private credit funds and syndicates are not bound by the same regulatory capital ratios. That flexibility allows them to design structures tailored to the borrower, while embedding robust security for the lender.
What private credit offers SMEs
- Flexible underwriting. Private investors assess real-world business performance, not rigid credit-score models.
- Collateral variety. Loans can be secured against receivables, contracts, equipment, or other tangible and legal assets.
- Faster execution. Direct relationships reduce bureaucracy and shorten decision timelines.
- Aligned incentives. Lenders and borrowers often work collaboratively to structure terms that support growth while protecting capital.
This approach has created a parallel ecosystem to traditional banking — one focused on bespoke solutions rather than mass-market lending.
Case study: Private Credit in action (an example of how it could work)
A European manufacturing SME “Company A” faced rising demand for its precision-engineered components. To fulfil new export contracts, it needed to purchase machinery and increase working capital.
Its bank declined to extend additional facilities, citing limited property collateral and concentration risk.
The company was introduced to a private credit structure secured by the equipment being financed and a portion of future receivables.
Outcome:
- Production capacity rose 30 percent.
- Export orders were fulfilled on schedule.
- The business repaid the facility in 24 months.
For investors, the opportunity delivered defined, asset-backed returns with transparent security and a clear repayment schedule.
Why investors are drawn to this space
For professional and institutional investors, the SME funding gap represents an attractive, scalable opportunity:
- Yield premium. Private SME loans typically offer higher fixed returns than comparable public-market debt, reflecting illiquidity and underwriting complexity.
- Collateral security. Facilities can be structured with direct legal claims over assets, receivables or insured cash flows.
- Diversification. Returns are largely uncorrelated with equity and bond markets.
- Short-to-medium durations. Terms typically range from 12 to 36 months, allowing faster capital recycling.
- Real-economy impact. Investors support productive businesses that drive employment and innovation.
This combination income, security and tangible economic value positions private credit as a compelling component of institutional portfolios.
The WIUS approach
Connecting capital and opportunity
At WIUS Capital, we specialise in litigation-backed and asset-backed private credit. Our team sources and structures opportunities that align capital protection with performance potential.
Each transaction undergoes a disciplined process:
- Origination. We identify counterparties and SMEs with strong operational track records and measurable assets or receivables.
- Due diligence. Legal, financial and operational checks confirm enforceability, insurance, and transparency of underlying assets.
- Structuring. Loans are secured through assignment rights, insurance, or direct collateral, supported by third-party verification.
- Monitoring. Continuous reporting ensures investors have visibility over performance and repayment.
Why this matters
Our investors are not seeking speculative exposure. They want secured, transparent credit opportunities that deliver defined income with disciplined downside protection. WIUS provides exclusive access to that market opportunities rarely available through public channels.
- Learn more about our Private Credit Investment Solutions
- Explore how WIUS structures Services for Companies Seeking Capital
- Contact WIUS Capital to discuss capital raising or investor participation
Frequently Asked Questions
Why are banks reducing SME lending?
Regulatory capital rules and risk frameworks make SME loans expensive relative to returns. Many banks now prioritise large corporates or real estate-backed lending.
What is the SME funding gap?
It refers to the shortfall between SME capital demand and available financing from traditional sources. Globally, it exceeds $5 trillion.
How does private credit differ from traditional lending?
Private credit structures are negotiated directly between investors and borrowers. They offer flexibility in collateral, faster execution, and tailored terms but with robust documentation and oversight.
What makes these opportunities attractive to investors?
Defined income, collateral-backed protection, low correlation with public markets, and exposure to productive economic activity.
What risks exist?
Credit risk, operational risk, and illiquidity. WIUS mitigates these through due diligence, diversification and secured structures.
Can SMEs without property qualify?
Yes. Asset-backed private credit can use receivables, contracts, inventory or equipment as security instead of real estate.
Further Reading
The SME funding gap is both a challenge and an opportunity. As banks retreat from growth lending, private investors are stepping in delivering capital to businesses and creating stable, asset-backed income streams in return.
WIUS Capital operates at this intersection of need and opportunity. We connect qualified investors with structured private credit opportunities, and we connect businesses with the capital required to scale.
Contact WIUS Capital
Disclaimer:
This content is for general information only and does not constitute investment advice or a recommendation. All investments involve risk, and your capital is at risk. Opportunities discussed are intended for professional, high net worth, sophisticated and institutional investors only. Private market investments can be illiquid and complex, and you could lose all invested capital.
Written by Ben Gilbert
Co-Founder, WIUS Capital
Ben is a serial entrepreneur with more than 20 years of experience founding and scaling companies across telecoms, energy, and agritech. He has raised over $500 million for projects spanning five continents and developed innovative technology to solve challenges in renewable energy and agriculture. At WIUS Capital, Ben brings his global business development expertise and hands-on approach to structuring exclusive private credit opportunities and supporting companies in accessing strategic growth capital. Recognised for his integrity and innovation, Ben continues to build long-term relationships that deliver meaningful results for investors and businesses alike.
Meet the Founders: https://wiuscapital.com/meet-the-founders/
LinkedIn: https://www.linkedin.com/in/bengilbert007/
