Despite record numbers of active businesses in the UK, hundreds of thousands of startups are being locked out of funding because traditional credit scoring models fail to reflect how modern companies operate, according to Andrea Reynolds, CEO and founder of fintech platform Swoop Funding.
Figures from NatWest and Beauhurst’s New Startup Index1 reveal that the UK is now home to 5.6 million businesses. But while 846,000 new companies launched in 2024, that figure represents a 3% drop on the previous year. Andrea warns that unless the finance industry reforms how it assesses risk, the slowdown could deepen.
“It’s never been easier to launch a business, yet it’s never been harder to fund one. We’re seeing brilliant founders excluded from finance not because they lack potential, but because they don’t fit outdated scoring models built for another era.
“Whilst we’re starting to see more awareness and support with regards to funding startups through the newly announced Backing Your Business scheme, there’s still not sufficient awareness of these funding options, and much of the time, they’re fragmented processes.”, adds Andrea.
Legacy models aren’t built for today’s startups
“Current credit scoring models are often inherently biased towards more mature businesses and do not adequately reflect the unique needs and risk profiles of modern startups.”, claims Andrea.
According to business platform site, Swoop Funding, historically, business credit scores were designed to serve a specific profile of established companies with long track records, stable cash flow, and neatly filed accounts. They’re calculated using a blend of behavioural factors, such as payment history or legal issues. Also, financial indicators, such as debt-to-asset ratio or receivables turnover.
“While this works well for mature firms, it completely fails for new and early-stage businesses that haven’t yet built up that kind of footprint.
This creates what’s known as a ‘thin-file’ or ‘no-file’ problem, a common roadblock for startups. Innovative but unproven businesses are deemed ‘unscorable’ or high-risk, regardless of their potential, and are therefore denied access to the lifeblood of growth, debt funding.”, explains Andrea.
Attempts at innovation in credit models still fall short
Some progress is being made through AI, open banking, and alternative data sources, from utility payments and real-time bank data to social signals and even psychometrics.
However, Andrea warns that we’re not quite there yet, explaining, “While advancements in AI and alternative data are emerging to provide a more holistic view of creditworthiness, issues of data quality, transparency, and the potential for new forms of bias still exist.”
When innovation outpaces infrastructure, it’s startups that pay the price, according to Andrea. She adds, “Businesses have long complained that traditional bank lending is hard to secure, and it’s only getting more difficult.”
Changing both systems and mindsets
As a female founder, Andrea believes in taking a two-pronged approach of practical empowerment and systemic change.
She explains, “On the practical side, it’s never too early for a business to build its credit profile, and that starts with visibility. From opening a business bank account and registering a company phone number, to applying for a business credit card or establishing credit lines with suppliers. Maintaining a clean credit history, paying on time, and separating personal and business accounts also make a measurable difference.”
Beyond that, she strongly advocates for the Startup Loan Scheme, a government-backed initiative that offers low-interest borrowing and access to mentorship.
But the cultural shift is just as important, she claims. “Many entrepreneurs, especially those from underrepresented groups, still see borrowing through the lens of personal debt.
With so many side hustles becoming serious businesses and entrepreneurs coming from across the socio-economic spectrum, new founders can be forgiven for thinking that business debt is like personal debt, but it isn’t. There is a world of difference between getting a loan for a car or a holiday and borrowing capital that will give you a return when invested in your business.”
This mindset gap is costing the UK millions in lost innovation, she claims. “We know that women are falling behind when it comes to seeking funding. As a female founder myself, I know firsthand that funding isn’t just something that can happen, it’s something you must plan for. It should be an intentional, well-informed step on every founder’s journey.”
Building a credit system that fuels, not filters, startups
“If we want to support entrepreneurship and fuel economic growth, we need a funding infrastructure that recognises potential, not just paperwork.”, shares Andrea.
She explains that credit scoring models must evolve to account for the messy, iterative, risk-taking nature of startups. That includes:
- Using real-time business performance, not just historical data
- Creating separate lending models for pre-revenue businesses
- Rewarding strong founder behaviour and growth signals
- Rebuilding trust in borrowing as a tool for growth, not debt
Andrea concludes, adding, “Capital isn’t just about cash flow, it’s about confidence. And right now, too many brilliant founders are being excluded from the system that’s meant to support them.”
Read the orginal article: https://ffnews.com/newsarticle/funding/outdated-credit-scores-blocking-uk-startup-boom-warns-swoop-funding-ceo/
