Britain’s digital lenders to small businesses are outperforming consumer fintechs by achieving profitability faster, filling a lending gap left by traditional banks. Challenger banks now provide the majority of financing for small and medium-sized enterprises (SMEs), with non-traditional lenders accounting for 60% of annual lending to small businesses in 2024. Allica Bank, which lends to businesses with 5–250 employees, reported its first statutory pre-tax profit in 2023 and generated £36.9mn in profit in 2025, a 23% increase.
It has applied for a Swedish banking licence and plans expansion in Northern Europe. Iwoca posted its first pre-tax profit in 2018 and is exploring a sale that could value it at over £1bn, with revenue up 56% to £366mn in 2025. Oak North, the first UK digital challenger bank to turn a profit (in 2017), acquired Michigan-based Community Unity Bank to expand into the US.
Richard Davies, CEO of Allica Bank, notes a significant market shift toward challengers and fintechs over the past 15 years, as traditional banks retreated from SME lending due to higher risk and lower profitability.
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