Why Traditional Banking is Failing Small and Medium-sized Businesses (And What Needs to Change)

For small and medium-sized enterprises (SMEs), getting access to capital has never been straightforward—but today, it’s flat-out frustrating. Inflation is driving up costs, economic uncertainty is making lenders nervous, and traditional banks are clinging to outdated credit models that ignore how modern businesses actually operate.

Katherine Chan, CEO of Juice—a fast-growing e-commerce brand—has seen this frustration up close. Her experience with banks was not defined by partnership or opportunity, but by misalignment and inefficiency. Juice had strong revenue, a loyal customer base, and real momentum—but when the company turned to traditional banks for growth capital, the door was slammed shut.

“We were profitable, scaling fast, and had recurring customers—but the bank wouldn’t even look at us because we didn’t have two years of tax returns,” said Chan. “It was like they didn’t know how to assess a digital business. We weren’t asking for a handout. We needed a partner—and we got paperwork.”

The Core Problems with Traditional Banking

Chan’s story is not unique. SMEs across industries are facing the same broken processes, rigid standards, and unnecessary roadblocks from financial institutions that claim to support small businesses.

1. Backwards Risk Models

Banks still use credit assessment systems that prioritize physical assets, long business history, and perfect credit scores. For companies like Juice—digital-first, asset-light, and scaling quickly—those models are a poor fit.

“They couldn’t see the value of our customer retention, our monthly revenue, or even our market demand,” said Chan. “They just wanted tax returns and property.”

2. Red Tape and Delays

Traditional loan applications often stretch on for weeks, with no clear communication and endless paperwork.

“Even if you might qualify, the process is brutal,” Chan explained. “We’d go back and forth with forms, get bounced between departments, and still not get a decision. Meanwhile, we had growth opportunities we couldn’t wait around for.”

3. One-Size-Fits-None Products

Many SME founders are frustrated by rigid repayment terms and loan products that weren’t built for companies with fluctuating or seasonal revenue.

“The terms made no sense for how we operate,” Chan said. “Fixed payments when your revenue ebbs and flows? That’s just setting companies up to fail.”

4. Lack of Understanding

Most frustrating of all, banks often fail to understand how newer, digital businesses function—or how to evaluate their potential.

“We were told we were ‘too young’ as a business, or that our structure was too ‘non-traditional,’” said Chan. “But that’s the reality for a lot of high-growth startups. If banks can’t adapt, they’ll keep missing out on the next generation of successful companies.”

The Emotional Cost of Being Ignored

Beyond the operational issues, Chan pointed out the emotional toll of constantly being told “no” for the wrong reasons.

“It wasn’t just disappointing—it was demoralizing. We were doing everything right. We had product-market fit, strong cash flow, and a growing team. But the bank still saw us as a risk because we didn’t fit their old-school checklist.” That experience, she says, was a wake-up call. “I walked away from that process thinking: the system isn’t broken. It’s just not built for companies like ours.”

Time for a New Playbook

Chan believes the real problem isn’t SMEs—it’s the systems trying to evaluate them. Traditional banking was built in an era when business success meant factories, real estate, and years of steady growth. Today’s businesses are agile, data-rich, and fast-moving. They need funding solutions that reflect that.

“If banks don’t evolve, they’ll continue to be irrelevant to companies like Juice,” she said. “We’re not waiting around anymore. We’re finding better alternatives that understand how we operate and where we’re going.”

The Fintech Pivot: How Alternative Lenders Are Powering SME Growth

After being shut out by traditional banks, Chan could’ve hit pause on her company’s growth plans. But instead, she pivoted. What she found outside the walls of traditional banking wasn’t just a Plan B—it was a better path entirely. The rise of fintech and alternative lenders gave Juice the agility, speed, and understanding that legacy institutions lacked. And that made all the difference. “When we stopped trying to fit into a system that wasn’t built for us and started looking at lenders who actually understood modern businesses, everything changed,” said Chan. “It wasn’t just capital—it was alignment.”

What Alternative Lenders Do Differently

SMEs like Juice are finding real traction with non-bank lenders because of three key advantages: speed, flexibility, and data-driven assessment.

1. Faster Access to Capital

In fast-moving markets, timing is everything. Traditional banks often take weeks or months to approve a loan—time that growing businesses don’t have. “With our fintech lender, we went from application to approval in days, not weeks,” said Chan. “That kind of speed let us jump on a major inventory buy that paid off big in Q4.”

2. Flexible Loan Structures

Instead of rigid repayment schedules, many alternative lenders offer revenue-based financing or other structures tailored to the ebb and flow of real business cycles.

“Our repayments flexed with our revenue,” she explained. “That meant we could keep investing in growth without feeling strangled during slower periods.”

3. Data-Driven, Modern Underwriting

Unlike traditional banks that fixate on tax returns and collateral, alternative lenders often use real-time business data—like payment processing history, e-commerce performance, and customer retention metrics. “They didn’t need a three-year-old balance sheet. They looked at our Shopify data, our CAC-to-LTV ratio, our churn. They got it.”

Finding the Right Partner

Chan emphasizes that not all alternative lenders are created equal—some are still transactional, while others are true partners. “We talked to a few players before we landed on the one that felt right. What set them apart was their transparency and their willingness to understand our vision.”

That relationship gave Juice room to scale confidently—launching new SKUs, expanding marketing efforts, and even exploring international fulfillment.

Beyond the Loan: A Strategic Advantage

For Chan, the experience proved that access to capital shouldn’t be a bottleneck for innovative businesses. “Once we had the right funding, we weren’t just growing—we were growing smarter. We could test new channels, double down on what worked, and stay ahead of demand.”

More than just a financial tool, alternative lending became a strategic edge.

A New Era for SME Financing

As more startups and SMEs rethink their financing strategy, Chan believes the future of business funding lies with the platforms and partners that actually get them. “Banks might catch up eventually. But founders shouldn’t have to wait. There are smarter, faster, and more aligned options out there—and they’re open for business.”

Reference: This article draws from and reinterprets insights originally shared in: From Survival to Scale – How Fintech is Transforming SME Growth Post-Crisis, published on Finextra.