SME lending markets improving
17/03/2026
The British Business Bank’s Small Business Finance Markets 2025/26 report finds that gross SME bank lending increased by 9pct to £68 billion in 2025, making it the second highest level in the past thirteen years (behind 2020’s Covid peak), as credit conditions eased gradually through the year.
Business dynamism is showing signs of improvement, with 314,000 start-ups created in 2025, up 1pct on the previous year, and with a net rise in the overall business population.
External finance remains widely used, with around 50pct of smaller businesses using external finance in 2025. Credit cards (19pct) and overdrafts (16pct) were the most commonly used products in Q3 2025, alongside leasing and hire purchase (13pct), reflecting increased use of flexible, short-term finance. This suggests, however, that debt finance is being used for stability rather than growth.
There is an accompanying broader awareness of finance options, with 62pct of smaller businesses in 2025 stating they knew where to obtain information on different types of finance, five percentage points higher than in 2024, indicating greater visibility and understanding of the choices available.
Challenger and specialist banks accounted for 60pct of gross SME bank lending (excluding overdrafts) in 2025, up from 39pct in 2012. The growth of non-bank lenders over the past decade means over two thirds (68pct) of overall SME lending in 2025 came from either challenger and specialist banks or non-bank lenders.
Since 2013, 28 new providers have entered the smaller business banking market. Of these, 43pct are, or have been, British Business Bank delivery partners.
Challenger and specialist banks also continue to play a leading role in technological advancements and have helped facilitate new entrants. Examples of these advancements include ‘bank in a box’, Software as a Service ("SaaS"), and digital-only finance providers.
Louis Taylor, CEO, British Business Bank said, “Following the recent Spending Review, we are increasing our annual funded commitments to around £2.5 billion – a two-thirds increase – and issuing around £2.1 billion annually in guarantees to help even more smaller UK businesses."
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