Lending to SMEs increase by 8%

UK Finance’s latest Business Finance Review shows that SME lending by the main high street banks increased by 8 per cent in the second quarter of 2025 to £4.24 billion, compared with the same period last year. Within this total, gross lending to small businesses (with a turnover of up to £2 million) increased the most, up 28 per cent from the same period in 2024.   

In terms of loan approvals to SMEs within the quarter, these increased by seven per cent in number and 11 per cent in value. As with gross lending figures, there was a focus on small businesses. The number of loans increased by 14 per cent and the value increased by 15 per cent.

Whilst loan approvals are up, demand for overdrafts has cooled, with the number of approvals dropping to the lowest level in a year. 

The total held in business accounts dropped slightly, down 2.4 per cent compared to last year. Overall, deposits are now about 20 per cent lower than they were at the height of the pandemic in 2021, mostly because businesses are holding less in instantly accessible accounts.

Many small and medium-sized businesses still have headroom within existing facilities and deposits to manage immediate business challenges. 

The first half of this year has seen modest growth in SME lending although businesses remain cautious in a cost-conscious business environment. 

Economic uncertainty – including trade risks, weak consumer confidence, and anticipation around the Autumn Budget – is expected to weigh further on lending activity.  

The effects won’t be felt evenly. Export-focused businesses may face pressure from tariffs, while those with large workforces could be more affected by shifts in employment costs and regulation.

David Raw, Managing Director of Commercial Finance, said “It is encouraging to see lending up year-on-year, especially for smaller businesses. There have also been important changes announced in the Government’s small business strategy this summer, including the extension of the growth guarantee scheme, cracking down on late and poor payment practices, and the launch of the Business Growth Service. We’re committed to continuing to work with businesses and policymakers to help SMEs grow and thrive.”

Gary Thompson, sales director at Asset Advantage, said “Given the critical role of SMEs in the UK economy, it is hugely positive to see lending increase. Such is the current climate, we need lenders to keep coming to the table and provide suitable support. What is encouraging is that alongside the established big retail banks and lenders, we also have more specialist funders and providers who are actively filling gaps in appetite and risk not met by the rigid processes of the larger banks.

“As pressures on this segment of the market look set to increase, this must continue. It’s imperative that lenders approach deals with an open mind. While we know that some businesses may be looking to fund more short-term needs instead of strategic investments, we have been encouraged to see businesses who are looking to expand, invest and scale. It’s all about giving SMEs the confidence to push ahead and providing commercial brokers with the right tools to facilitate these deals.”