- \n
- challenger banks and SME loans<\/a><\/li>\n\n\n\n
- what is a challenger bank?<\/a><\/li>\n\n\n\n
- why choose a challenger bank?<\/a><\/li>\n<\/ul>\n<\/div>\n\n\n\n
\n- \n
- are challenger banks safe?<\/a><\/li>\n\n\n\n
- best challenger bank for small businesses<\/a><\/li>\n<\/ul>\n<\/div>\n<\/div>\n\n\n\n
Challenger banks bag the majority of SME loan applications<\/h2>\n\n\n\n
A new survey of SME brokers from iwoca<\/a> reveals that, in the last four weeks, 61 per cent of brokers chose to submit the majority of their loan applications to alternative lenders.<\/p>\n\n\n\n
This could be a direct response to how high street banks are changing \u2013 with 39 per cent of brokers agreeing that high street banks have reduced their appetite for funding SMEs.<\/p>\n\n\n\n
\n\n<\/span>![\"\"](\"https:\/\/www.simplybusiness.co.uk\/wp-content\/uploads\/sites\/3\/2024\/11\/Circles-01.png\")
\n61%<\/strong><\/p>\n\n\n\n
of brokers have submitted loan applications to alternative lenders in the last 4 weeks<\/p>\n<\/div><\/div>\n<\/div>\n\n\n\n
\n<\/span>![\"\"](\"https:\/\/www.simplybusiness.co.uk\/wp-content\/uploads\/sites\/3\/2024\/11\/Circles-02.png\")
\n39%<\/strong><\/p>\n\n\n\n
of brokers believe that high street banks have reduced their appetite for funding SMEs<\/p>\n<\/div><\/div>\n<\/div>\n<\/div>\n\n\n\n
And despite high street banks having prestige and tradition on their side, only 11 per cent of brokers say they consider the lender\u2019s reputation as a factor when submitting a loan application.<\/p>\n\n\n\n
But the shift in funding opportunities could also come down to business owners themselves \u2013 where generational preference could be the cause. New data from unblu<\/a> reveals that the preference for in-person banking is decreasing with each generation.<\/p>\n\n\n\n
\n\n<\/span>\n12%<\/strong><\/p>\n<\/div><\/div>\n\n\n\n
of Gen Z use physical branches<\/p>\n<\/div>\n\n\n\n
\n<\/span>\n39%<\/strong><\/p>\n<\/div><\/div>\n\n\n\n
of Gen X use physical branches<\/p>\n<\/div>\n\n\n\n
\n<\/span>![\"\"](\"https:\/\/www.simplybusiness.co.uk\/wp-content\/uploads\/sites\/3\/2024\/11\/Circles-03.png\")
\n58%<\/strong><\/p>\n<\/div><\/div>\n\n\n\n
of Boomers use physical branches<\/p>\n<\/div>\n<\/div>\n\n\n\n
\nWhat is a challenger bank?<\/h2>\n\n\n\n
Challenger banks can be defined as a bank that\u2019s not part of a \u2018big four\u2019 banking group \u2013 Barclays, HSBC, Lloyds, and the Royal Bank of Scotland.<\/p>\n\n\n\n
Challenger banks emerged to address the technological gap left by traditional banks, offering convenient, tech-driven services. This makes them an attractive, fast option for businesses that want to get set up quickly, without the need for in-person appointments.<\/p>\n\n\n\n
Challenger banks are often associated with mobile-only and digital-first benefits, designed to give customers more convenient ways of accessing their money.<\/p>\n<\/div>\n\n\n\n
\n<\/div>\n\n\n\nWhy choose a challenger bank?<\/h2>\n\n\n\n
Challenger bank pros<\/h3>\n\n\n\n
- \n
- poor service from traditional banks<\/strong> \u2013 whether it\u2019s mobile-friendly apps or longer opening hours, challenger banks secure the top three spots for service quality (BVA BDRC)<\/a><\/li>\n\n\n\n
- better use of technology<\/strong> \u2013 traditional banks are playing catch-up with their digital services, and challenger banks built entirely around an app often have more advanced features (for example, budgeting tools and integration with accounting apps)<\/li>\n\n\n\n
- speed<\/strong> \u2013 you can usually open an account through an app in minutes, with your card arriving in days<\/li>\n<\/ul>\n\n\n\n
Challenger bank cons<\/h3>\n\n\n\n
- \n
- they\u2019re usually new<\/strong> \u2013 which means there\u2019s more risk of them shutting down. While your money should be safe if this happens, it can cause more hassle than you need when running a business<\/li>\n\n\n\n
- not all of them have a banking license<\/strong> \u2013 some digital-first services work as e-money institutions rather than full banks. This means you\u2019ll get a sort code, account number and debit card, which you can load up through an app. They\u2019re still regulated, but you won\u2019t get a full account with facilities like loans and overdrafts \u2013 and while your money is protected, it\u2019s not protected to the same extent (more on that below)<\/li>\n<\/ul>\n\n\n\n
\nAre challenger banks safe?<\/h2>\n\n\n\n
Yes \u2013 UK challenger banks are safe as long as they have a banking licence and are protected by the Financial Services Compensation Scheme (FSCS). This protects your deposits up to \u00a385,000. But despite this, trust in some challenger banks has been shaken by controversies.<\/p>\n\n\n\n
German challenger bank N26 stopped UK operations following Brexit, while Bank North closed after failing to get a full banking licence from the Bank of England.<\/p>\n\n\n\n
However, even if a bank doesn\u2019t have a banking licence, they still have to separate your money so they can\u2019t use it to clear their own debts if things go wrong.<\/p>\n\n\n\n
But if you want an extra level of trust, be sure to look out for banks that have a banking license and FSCS protection.<\/p>\n<\/div>\n\n\n\n
Best challenger bank for small businesses<\/h2>\n\n\n\n
What\u2019s the best challenger bank for business? Here\u2019s our roundup of some of the best options, in no particular order. Be sure to research your options carefully and choose one that suits your business needs best.<\/p>\n\n\n\n
Tide<\/h3>\n\n\n\n
Tide<\/a> is a dedicated business banking app for freelancers, sole traders, limited companies and growing businesses.<\/p>\n\n\n\n
As an e-money firm, it doesn\u2019t have a banking license, but it protects your money in a separate account. Plus, Tide offers current accounts through ClearBank, in which your money will be covered by the FSCS.<\/p>\n\n\n\n
You can create invoices through the app, as well as sub-accounts if you want to have different money pots (like for your taxes or for marketing).<\/p>\n\n\n\n
It also integrates with other software like Xero and QuickBooks and you can use it on a laptop or desktop.<\/p>\n\n\n\n
It\u2019s free, but there\u2019s a bank transfer fee of 20p, as well as a \u00a31 charge for cash withdrawals and cash deposits.<\/p>\n\n\n\n
Tide also offers paid plans if you want to unlock more features:<\/p>\n\n\n\n
- \n
- the Smart plan is \u00a312.49 a month<\/strong> and gives you higher interest, priority support as well as a 24\/7 legal helpline<\/li>\n\n\n\n
- the <\/strong>Pro<\/strong> plan is \u00a3<\/strong>24.99<\/strong> a month<\/strong> and gives you everything the other plans offer, plus higher interest and additional team member access and expense cards<\/li>\n\n\n\n
- the Max plan is \u00a369.99 a month<\/strong> and gives you everything the other plans offer, plus the highest interest and most team member access and expense cards<\/li>\n<\/ul>\n\n\n\n
Starling Bank<\/h3>\n\n\n\n
Starling Bank<\/a> is a fully licensed bank rather than an e-money provider, which means your money is protected up to \u00a385,000 by the FSCS.<\/p>\n\n\n\n
It offers both personal accounts and current accounts, as well as business lending facilities (both overdrafts and loans).<\/p>\n\n\n\n
As with other apps, you can integrate Starling with your accounting software. And it has a \u2018business marketplace\u2019, where you can download other apps and connect them with your Starling app.<\/p>\n\n\n\n
Starling has also launched a feature called business toolkit<\/strong> to take care of admin like invoicing and expenses. A useful feature for sole traders is a real-time estimate of the money you need to keep aside for your Self Assessment tax bill<\/a>.<\/p>\n\n\n\n
Starling is free, with a \u00a33 charge for cash deposits at the Post Office, up to \u00a31,000. Anything over is charged at 0.7 per cent.<\/p>\n\n\n\n
The business toolkit feature costs \u00a37 a month.<\/p>\n\n\n\n
Monzo<\/h3>\n\n\n\n
Monzo<\/a> is one of the most well-known mobile banks, and they\u2019ve since launched a business account.<\/p>\n\n\n\n
Monzo is fully licensed, which means your money is protected up to \u00a385,000 by the FSCS.<\/p>\n\n\n\n
Monzo offers everything you\u2019ve come to expect from a mobile bank. The Pro option costs \u00a39 a month, but businesses get access to features like a pot to set aside a percentage for tax each time you\u2019re paid, integrated accounting with Xero, and automatic invoicing.<\/p>\n\n\n\n
Monzo\u2019s Lite option is free, but it has a far more limited set of features for businesses.<\/p>\n\n\n\n
Monzo also has a list of businesses<\/a> they can’t service right now, so be sure to check whether you’re eligible first.<\/p>\n\n\n\n
Mettle<\/h3>\n\n\n\n
Natwest launched Mettle<\/a> in 2019 as its digital-first product. You don\u2019t need to be a Natwest customer to use Mettle, as it\u2019s run independently.<\/p>\n\n\n\n
It\u2019s targeted at smaller businesses \u2013 sole traders and limited companies with up to two owners \u2013 and is FSCS-protected.<\/p>\n\n\n\n
It has invoicing and accounting features, and can integrate with software like Xero and FreeAgent. In fact, you can access FreeAgent for free, as long as you make one transaction a month from your Mettle account.<\/p>\n\n\n\n
Mettle is also completely free, for now anyway. They say there are no hidden costs or transaction fees and will give customers plenty of notice if that changes \u2013 though you can choose to subscribe to Mettle+ for \u00a34 a month for access to advanced features.<\/p>\n\n\n\n
ANNA<\/h3>\n\n\n\n
ANNA<\/a> stands for \u2018absolutely no nonsense admin\u2019 and is another dedicated business banking app. Its gimmick? The app meows when you make a payment \u2013 you can decide whether that’s a good or a bad thing.<\/p>\n\n\n\n
ANNA makes good on what it stands for by creating, sending and chasing invoices through the app.<\/p>\n\n\n\n
You can also easily track your expenses \u2013 when you make a payment with your debit card, the app prompts you to take a picture of the receipt. It automatically categorises and stores your expenses, meaning you don\u2019t have to worry about losing receipts.<\/p>\n\n\n\n
Like Tide, ANNA is an e-money firm, so your money isn\u2019t covered by the FSCS.<\/p>\n\n\n\n
ANNA is free, with different pricing plans as your business grows. The top-tier pricing plans give you access to different features, like invoices with no ANNA branding:<\/p>\n\n\n\n
- \n
- a <\/strong>free<\/strong> plan <\/strong>that charges you 0.95 per cent commission on payments<\/li>\n\n\n\n
- \u00a3<\/strong>19.90<\/strong> a month<\/strong> for 60 free local transfers and five expense cards<\/li>\n\n\n\n
- \u00a3<\/strong>49.90<\/strong> a month<\/strong> for bigger businesses \u2013 with unlimited free local transfers and expense cards<\/li>\n\n\n\n
- an optional additional \u00a3<\/strong>24<\/strong> a month<\/strong> for limited companies who want to add bookkeeping, corporation tax, VAT, and payroll features<\/li>\n<\/ul>\n\n\n\n
\nChallenger banks \u2013 key takeaways<\/h2>\n\n\n\n
- \n
- a growing number of small businesses are shifting away from traditional high street banks and towards challenger banks, which reportedly receive the majority of SME loan applications<\/li>\n\n\n\n
- this change could be driven by a perception that traditional banks have a reduced appetite for funding small businesses, as well as a generational preference for digital-first services<\/li>\n\n\n\n
- challenger banks offer numerous benefits, including a superior customer experience, advanced technology with features like accounting app integration and budgeting tools, and a faster account setup process<\/li>\n\n\n\n
- while they may pose some risks due to their relative newness and lack of physical branches, many are fully licensed and offer the same financial protection as traditional banks, such as FSCS coverage for deposits up to \u00a385,000<\/li>\n<\/ul>\n<\/div>\n\n\n\n
Challenger banks \u2013 FAQs<\/h2>\n\n\n\n
What is a challenger bank for small businesses?<\/h3>\n\n\n\n
A challenger bank is a bank that competes with the established “big four” high street banks. They typically operate on a digital-first model, offering modern, tech-driven services designed for small businesses, freelancers, and sole traders \u2013 often with a focus on speed, convenience, and innovative features.<\/p>\n\n\n\n
Are challenger banks safe for my business?<\/h3>\n\n\n\n
Yes, UK challenger banks are safe, provided they hold a full banking license and are protected by the Financial Services Compensation Scheme (FSCS). This scheme protects your deposits up to \u00a385,000, which is the same level of protection offered by traditional banks.<\/p>\n\n\n\n
However, some digital-first services are e-money institutions, which have a different level of protection.<\/p>\n\n\n\n
What are the main benefits of using a challenger bank for my business?<\/h3>\n\n\n\n
The main benefits of using a challenger bank include a better user experience with mobile-friendly apps, advanced technological features like integrated accounting and budgeting tools, and a much faster account opening process.<\/p>\n\n\n\n
More small business banking guides<\/h3>\n\n\n\n
- \n
- 7 of the best business loans compared<\/a><\/li>\n\n\n\n
- Small business funding and investment: how to grow your business<\/a><\/li>\n\n\n\n
- Can HMRC check your bank account without your permission?<\/a><\/li>\n\n\n\n
- Self-employed expenses in the UK \u2013 what can you claim?<\/a><\/li>\n<\/ul>\n\n\n\n
\nLooking for self-employed insurance?<\/h3>\n\n\n\n
With Simply Business you can build a single self employed insurance<\/a> policy combining the covers that are relevant to you. Whether it’s public liability insurance<\/a>, professional indemnity<\/a> or whatever else you need, we’ll run you a quick quote online, and let you decide if we’re a good fit.<\/p>\n\n\n\n
- Small business funding and investment: how to grow your business<\/a><\/li>\n\n\n\n
- 7 of the best business loans compared<\/a><\/li>\n\n\n\n
- \u00a3<\/strong>19.90<\/strong> a month<\/strong> for 60 free local transfers and five expense cards<\/li>\n\n\n\n
- the <\/strong>Pro<\/strong> plan is \u00a3<\/strong>24.99<\/strong> a month<\/strong> and gives you everything the other plans offer, plus higher interest and additional team member access and expense cards<\/li>\n\n\n\n
- not all of them have a banking license<\/strong> \u2013 some digital-first services work as e-money institutions rather than full banks. This means you\u2019ll get a sort code, account number and debit card, which you can load up through an app. They\u2019re still regulated, but you won\u2019t get a full account with facilities like loans and overdrafts \u2013 and while your money is protected, it\u2019s not protected to the same extent (more on that below)<\/li>\n<\/ul>\n\n\n\n
- better use of technology<\/strong> \u2013 traditional banks are playing catch-up with their digital services, and challenger banks built entirely around an app often have more advanced features (for example, budgeting tools and integration with accounting apps)<\/li>\n\n\n\n
- best challenger bank for small businesses<\/a><\/li>\n<\/ul>\n<\/div>\n<\/div>\n\n\n\n
- what is a challenger bank?<\/a><\/li>\n\n\n\n