UK SME lending hits two-year high as banks boost support

Lending to UK small and medium-sized enterprises (SMEs) by high street banks surged in the first quarter of 2025, reaching £4.6 billion — the highest quarterly total since Q2 2022, according to UK Finance’s latest Business Finance Review. This marks the sixth consecutive quarterly rise and a 14% increase compared to the same period last year.

The growth was driven by robust lending across key sectors including agriculture, manufacturing, wholesale and retail, and health. Notably, the smallest businesses — those with annual turnovers up to £2 million — saw lending jump nearly 30% year-on-year. Medium-sized firms also benefited, with lending to this group rising by 9%.

The upturn in finance activity was also reflected in higher approval rates. New loan approvals soared 37% compared to Q1 2024, while overdraft approvals were up 8%. Although the number of approved applications has grown, the total value of approvals fell slightly, suggesting a cautious but sustained demand for finance.

Despite the uptick in borrowing, SMEs have maintained consistent utilisation of existing facilities, with usage levels holding steady at around 50%. Analysts interpret this as a sign that many businesses are securing finance as a precaution against rising costs and margin pressures rather than out of immediate necessity.

David Raw, Managing Director of Commercial Finance at UK Finance, welcomed the findings: “SMEs are a vital part of the UK economy, and it is encouraging that lending to them continues to go up.

“It is particularly welcome to see small businesses specifically accessing greater levels of finance than this time last year.”

Raw also called on policymakers to make the Growth Guarantee Scheme permanent and expand its funding to sustain this positive lending trend. “The regulatory environment is important and that is why we think the government should make the Growth Guarantee Scheme permanent and increase the size of the scheme’s budget. This would help support even more SME lending,” he said.

The data, sourced from a consortium of major UK banks including Barclays, Lloyds, HSBC, NatWest, and Santander, represents activity across both Great Britain and Northern Ireland.

Neil Rudge, Chief Banking Officer at Shawbrook, echoed the positive tone but warned of underlying challenges: “The latest UK Finance data reveals a welcome rise in lending to UK SMEs in Q1 2025 – a trend echoed in our own research. Yet despite this uptick, uncertainty still dominates.”

According to Shawbrook’s internal research, nearly one in five SMEs plan to secure new funding this year. However, 78% of business leaders remain concerned about inflation, and over 40% fear the recent rise in National Insurance Contributions will hamper their prospects.

Still, resilience among SMEs appears strong, with more than 70% reporting growth in the past year and 15% attributing that growth to new funding. Looking ahead, three-quarters of SME leaders say they feel optimistic about the coming year.

“The real issue isn’t the availability of capital – it’s the appetite for it,” Rudge added. “Tailored, flexible solutions will be critical in helping businesses turn tentative optimism into meaningful investment and long-term growth.”