UK SME lending rises 6% in Q3 2025 but growth slows

Lending to UK small and medium-sized enterprises (SMEs) rose for the seventh consecutive quarter in Q3 2025, according to UK Finance’s latest Business Finance Review.

Gross lending by the main High Street banks reached just under £4.2 billion in the three months to September – a level above the average recorded in both 2023 and 2024. Year on year, lending was 6.4 per cent higher than the same period in 2024, although this compares with 8.3 per cent growth in Q2 and marks the slowest expansion since the lending recovery began in early 2024.

This cooling in momentum had been anticipated, with earlier reviews highlighting a slowdown in new loan approvals, particularly among medium-sized firms.

UK Finance notes that the broader economic environment also weighed on activity: business sentiment weakened in the run-up to the Autumn Budget, amid concerns over the economic climate, political uncertainty and the possibility of further pressure on public finances. The SME Finance Monitor reported in Q3 that the proportion of SMEs worried about the economic outlook had surpassed 2020 levels.

Lending trends across business sizes showed a clear divergence. For the smallest companies – those with turnover below £2 million – lending “turned a corner” and was 15 per cent higher than a year earlier, reflecting the strong loan approvals seen throughout 2025. Lending to medium-sized businesses, however, was broadly flat over the quarter and only three per cent higher year on year. This aligns with a downward trend in approvals for medium-sized firms that has persisted since the beginning of the year.

Sector data also pointed to a slowdown. Year-on-year growth in gross lending eased across most industries compared with the first half of 2025. Manufacturing saw a marked drop, which UK Finance suggests may be linked to activity pulled forward earlier in the year ahead of US tariff and duty changes. Real estate also recorded weaker lending, likely influenced by recent stamp duty announcements. By contrast, accommodation, food services and retail experienced a modest pickup, reflecting the typical seasonal uplift ahead of the Christmas trading period.

New finance approvals further illustrated the softer backdrop. The overall value of approvals – spanning loans and overdrafts – was flat compared with Q3 2024, the weakest growth in two years. The number of approvals rose by just over ten per cent, but this was well below the strong pace seen in the second half of 2024. Overdraft approvals, which surged last year as businesses faced higher input and labour costs, have now dropped back and remain significantly below pre-pandemic levels.

Loan approvals, however, retained a degree of momentum, rising nearly 12 per cent bynumber, although the value of loans approved fell slightly. This pushed the average loan size down 12 per cent to just under £250,000, driven largely by weaker demand from medium-sized businesses. Small firms continued to buck the trend, with the number and value of loans to businesses in this group rising 21 per cent and 25 per cent respectively.

Despite the more cautious landscape, industry sentiment remains broadly positive about the role that finance providers can play.

Gary Thompson, sales director at Asset Advantage, said: “It is really encouraging to see yet another rise in SME lending, which certainly mirrors what we are seeing on the ground.

“Speaking with commercial brokers, it is clear that these enterprises are actively pursuing funding that helps them grow – whether that’s through asset finance or expansion-based lending. In fact, our latest data points to asset finance and business acquisitions dominating funding demands in the coming 12 months. As we head into the New Year, this is hugely positive given the important role SMEs play as the engine room of the UK economy.

“Lenders and funders have a critical role to play in facilitating this by making sure they are responsive to the needs of these businesses. Rather than restrictive appetites to risk, we must be open-minded, pragmatic and willing to look outside the box to assist SMEs, support transactions and give brokers the tools they need. In doing so, we can give SMEs the confidence to deploy flexible funding for growth and expansion, rather than plugging short-term gaps.”