50% of SMEs seek external finance

Gross SME bank lending increased by 9% to £68bn last year, the second highest level since 2012, according to the British Business Bank’s (BBB’s) Small Business Finance Markets 2025/26 report. Over two thirds (68%) of overall SME lending came from either challenger and specialist banks or non-bank lenders, while asset finance new business lending over the year was the highest on record.

The report found half of all SMEs currently use external finance, largely for working capital, cited by 50%. In comparison, 43% sought finance to invest in business growth and around a third (34%) for the purchase of fixed assets.

As a result, flexible forms of finance like credit cards remain the most frequently used type of finance, with smaller proportions using term loans. Use of leasing and hire purchase arrangements increased over 2025, from 10% in Q4 2024 to 13% in Q3 2025.

Meanwhile, the number of permanent non‑borrowers was unchanged in the first two quarters of 2025, at 41%, before declining to 37% in Q3.

BBB analysis covering all UK SME lending by banks excluding overdrafts and credit cards, shows the ‘big five’ banks supplied 61% of SME bank lending in 2012, whereas in 2025, challenger and specialist banks together accounted for 60% of UK gross SME bank lending for the second year in a row.

It a confirmed the steep decline in bank overdraft facilities for SMEs, noting that between 2012 and 2025, the stock of outstanding SME overdrafts held by banks fell by 54% in nominal terms and 68% in real terms.

Access to finance

Around a quarter (24%) of SMEs have sought finance over the last three years, broadly similar to 26% in the previous survey, but substantially lower than during 2021 (59%).

There was a five percentage point increase in the proportion of businesses knowing where to obtain information on the types of finance (62%) compared to a year ago, and a six percentage point increase in the proportion of businesses likely to seek external advice if they needed finance in the future.

However, SME awareness of a basket of six alternative finance types in 2025 was broadly similar to 2024 (average awareness levels of 55% compared to 57% in 2024), suggesting little change. There was also a decline of four percentage points in the proportion of businesses considering more than one provider in 2025, at 34%.

SME barriers

Despite an increase in providers, the survey analysis makes the point that the outstanding SME bank lending‑to‑GDP measure has declined since the great financial crisis, due to lower overdraft usage, increased debt repayments and shorter loan durations

The BBB report notes: “New market entry from challenger banks and greater competition has not been sufficient to increase in real terms the stock of lending to smaller businesses, which has instead fallen over time.

“The persistence of high pricing in other segments, or limited availability of higher risk lending, reflects structural constraints rather than weak competition. Capital rules and concerns about adverse selection limit bank lenders’ ability to support smaller businesses seeking unsecured finance or finance to support business growth and entry into new markets, which can be more uncertain.”

Asset finance

The smaller business asset finance market reported a 4% increase in new business in 2025 to £24.4bn, marking the fifth year of continuous growth , following the subdued 1% growth in 2024, and outpacing the growth rate of the asset finance market overall.

Banks provided the majority of new asset finance overall in 2025 with £15.6bn. As a percentage, banks’ share of the asset finance market has decreased annually from 2019 when it was 71% to 64% in 2025. In contrast, non‑bank asset finance lending grew 10% in 2025 reaching a series high of £8.8bn, reinforcing that much of the strong growth in recent years has been driven by the non‑bank sector.

“Smaller businesses continue to show great resilience and determination to succeed and thrive, creating jobs and investment across the UK, although economic growth will require greater confidence to invest in new capacity and capability.”