SME borrowing surges in Q1 as lending reaches £5.3bn

Gross lending to SMEs rose sharply in the first quarter of 2026, reaching its highest level since the end of the pandemic, according to the latest Business Finance Review published by UK Finance.

The quarterly report shows that gross lending by the main high street lenders increased 16% year-on-year to £5.3bn in Q1, with growth particularly strong among the smallest businesses and across sectors including agriculture, real estate, wholesale and retail, and recreation and personal services.

The increase marks the strongest quarterly lending performance since Covid-era lending schemes ended and reflects growing confidence among SMEs despite an increasingly uncertain global backdrop.

The report also found that the value of new loan approvals rose 36% compared with the same period last year, while the number of approvals increased by 42%, suggesting lending momentum could continue through the remainder of the year.

Among the strongest-performing sectors were real estate, where lending increased by more than a third year-on-year, and agriculture, which recorded lending growth of almost 25%. Lending to recreation and personal services was up by two thirds in Q1. Lending to the smallest businesses surged 51%, reaching its highest level since 2018, excluding Covid support schemes.

However, UK Finance cautioned that the outlook has become more uncertain following heightened geopolitical tensions and the ongoing conflict involving Iran, which has contributed to increased energy prices, supply chain disruption and weaker business confidence. The report notes that loan applications dipped in March while overdraft applications increased, potentially signalling a shift in demand towards short-term cashflow support.

“The economic outlook remains uncertain, but there are steps we can take to help even more SMEs to thrive, such as expanding the government’s Growth Guarantee Scheme. We believe an expanded scheme could unlock billions in additional lending to help deliver investment, growth and jobs across the UK.”

“Given everything that has been going on in the world over the past few months, we should be hugely encouraged by today’s figures. SMEs continue to demonstrate real resilience and ambition to invest in growth despite a challenging operating environment. It certainly mirrors what we are seeing on the ground in terms of business volumes and what we are hearing from our broker partners.”

Thompson said access to finance would remain critical as businesses navigate ongoing uncertainty.

“As businesses continue to navigate economic uncertainty and the impact of geopolitical tensions on supply chains, trade, costs and confidence, access to finance will remain absolutely critical.

“While uncertainty doesn’t eliminate opportunity, it does force us to be disciplined and to think more strategically – particularly when it comes to funding needs. Lenders have to be willing to provide that opportunity, looking beyond ever-tightening risk appetites and lending criteria to really understand the story behind the application and ensure good businesses get the fair hearing they deserve.

“This remains a key strength of more specialist funders, who are able to offer a more flexible and pragmatic approach to work with brokers in support of their SME clients.”

Despite the uncertain outlook, UK Finance noted that SMEs continue to demonstrate resilience, with repayments remaining stable and no significant signs of stress across the sector. The report concluded that lenders remain well positioned to support both businesses managing existing obligations and those continuing to invest for future growth.