UK SME lending rises 8%, UK Finance research shows

Gross lending to small and medium-sized enterprises (SMEs) by the UK’s main high street banks climbed to £4.24 billion in the second quarter of 2025, up 8% compared with the same period last year, according to the latest UK Finance Business Finance Review.

The report highlights particularly strong growth among small businesses – those with annual turnovers of up to £2 million – where lending surged by 28% year-on-year.

New finance approvals also reflected this trend, rising by 7% in number and 11% in value compared with Q2 2024. For small businesses specifically, the number of approved loans jumped 14%, while the total value increased 15%.

Despite higher loan activity, overdraft demand has weakened, with the number of approvals falling to their lowest level in a year.

The review also notes a shift in how SMEs are managing their finances. The total amount held in business accounts dropped 2.4% compared to last year and remains about 20% lower than during the pandemic peak in 2021. UK Finance suggests this is partly because firms are holding less cash in instantly accessible accounts, relying instead on existing credit facilities and deposits to manage short-term challenges.

Looking ahead, the report points to economic uncertainty as a key factor shaping business finance decisions in the second half of 2025. Factors such as trade risks, weak consumer confidence, and anticipation around the Autumn Budget are expected to weigh on lending activity, although the impact will vary by sector. Export-focused businesses could face additional tariff pressures, while firms with larger workforces may be more exposed to rising employment costs and regulatory changes.

David Raw, Managing Director of Commercial Finance at UK 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, added: “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. Encouragingly, alongside the established big retail banks, more specialist funders and providers are actively filling gaps in appetite and risk not met by the rigid processes of the larger banks.

“While 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.”