The end of high street banks? Try these 5 business challenger banks

Small businesses are turning their backs on funding from high street banks in favour of challenger banks, new data reveals. But why are so many small business owners turning away from traditional funding – and how could your business benefit?

Here’s our guide to challenger banks for small businesses – including what to look out for when deciding whether to trust one, and a list of the best challenger banks for small businesses.

Challenger banks bag the majority of SME loan applications

A new survey of SME brokers from iwoca reveals that, in the last four weeks, 61 per cent of brokers chose to submit the majority of their loan applications to alternative lenders.

This could be a direct response to how high street banks are changing – with 39 per cent of brokers agreeing that high street banks have reduced their appetite for funding SMEs.

61%

of brokers have submitted loan applications to alternative lenders in the last 4 weeks

39%

of brokers believe that high street banks have reduced their appetite for funding SMEs

And despite high street banks having prestige and tradition on their side, only 11 per cent of brokers say they consider the lender’s reputation as a factor when submitting a loan application.

But the shift in funding opportunities could also come down to business owners themselves – where generational preference could be the cause. New data from unblu reveals that the preference for in-person banking is decreasing with each generation.

12%

of Gen Z use physical branches

39%

of Gen X use physical branches

58%

of Boomers use physical branches

Why choose a challenger bank?

Challenger bank pros

• poor service from traditional banks – whether it’s mobile-friendly apps or longer opening hours, challenger banks secure the top three spots for service quality (BVA BDRC)
• better use of technology – 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)
• speed – you can usually open an account through an app in minutes, with your card arriving in days

Challenger bank cons

• they’re usually new – which means there’s 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
• not all of them have a banking license – some digital-first services work as e-money institutions rather than full banks. This means you’ll get a sort code, account number and debit card, which you can load up through an app. They’re still regulated, but you won’t get a full account with facilities like loans and overdrafts – and while your money is protected, it’s not protected to the same extent (more on that below)

Best challenger bank for small businesses

What’s the best challenger bank for business? Here’s 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.

Tide

Tide is a dedicated business banking app for freelancers, sole traders, limited companies and growing businesses.

As an e-money firm, it doesn’t 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.

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).

It also integrates with other software like Xero and QuickBooks and you can use it on a laptop or desktop.

It’s free, but there’s a bank transfer fee of 20p, as well as a £1 charge for cash withdrawals and cash deposits.

Tide also offers paid plans if you want to unlock more features:

• the Smart plan is £12.49 a month and gives you higher interest, priority support as well as a 24/7 legal helpline
• the Pro plan is £24.99 a month and gives you everything the other plans offer, plus higher interest and additional team member access and expense cards
• the Max plan is £69.99 a month and gives you everything the other plans offer, plus the highest interest and most team member access and expense cards

Starling Bank

Starling Bank is a fully licensed bank rather than an e-money provider, which means your money is protected up to £85,000 by the FSCS.

It offers both personal accounts and current accounts, as well as business lending facilities (both overdrafts and loans).

As with other apps, you can integrate Starling with your accounting software. And it has a ‘business marketplace’, where you can download other apps and connect them with your Starling app.

Starling has also launched a feature called business toolkit 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.

Starling is free, with a £3 charge for cash deposits at the Post Office, up to £1,000. Anything over is charged at 0.7 per cent.

The business toolkit feature costs £7 a month.

Monzo

Monzo is one of the most well-known mobile banks, and they’ve since launched a business account.

Monzo is fully licensed, which means your money is protected up to £85,000 by the FSCS.

Monzo offers everything you’ve come to expect from a mobile bank. The Pro option costs £9 a month, but businesses get access to features like a pot to set aside a percentage for tax each time you’re paid, integrated accounting with Xero, and automatic invoicing.

Monzo’s Lite option is free, but it has a far more limited set of features for businesses.

Monzo also has a list of businesses they can’t service right now, so be sure to check whether you’re eligible first.

Mettle

Natwest launched Mettle in 2019 as its digital-first product. You don’t need to be a Natwest customer to use Mettle, as it’s run independently.

It’s targeted at smaller businesses – sole traders and limited companies with up to two owners – and is FSCS-protected.

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.

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 – though you can choose to subscribe to Mettle+ for £4 a month for access to advanced features.

ANNA

ANNA stands for ‘absolutely no nonsense admin’ and is another dedicated business banking app. Its gimmick? The app meows when you make a payment – you can decide whether that’s a good or a bad thing.

ANNA makes good on what it stands for by creating, sending and chasing invoices through the app.

You can also easily track your expenses – 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’t have to worry about losing receipts.

Like Tide, ANNA is an e-money firm, so your money isn’t covered by the FSCS.

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:

• a free plan that charges you 0.95 per cent commission on payments
• £19.90 a month for 60 free local transfers and five expense cards
• £49.90 a month for bigger businesses – with unlimited free local transfers and expense cards
• an optional additional £24 a month for limited companies who want to add bookkeeping, corporation tax, VAT, and payroll features

Challenger banks – FAQs

What is a challenger bank for small businesses?

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 – often with a focus on speed, convenience, and innovative features.

Are challenger banks safe for my business?

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 £85,000, which is the same level of protection offered by traditional banks.

However, some digital-first services are e-money institutions, which have a different level of protection.

What are the main benefits of using a challenger bank for my business?

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.

More small business banking guides

• 7 of the best business loans compared
• Small business funding and investment: how to grow your business
• Can HMRC check your bank account without your permission?
• Self-employed expenses in the UK – what can you claim?