Lending to UK small and medium-sized enterprises (SMEs) rose by almost 10 per cent to £68bn in 2025, with the majority of finance driven by challenger banks and non-bank lenders.
According to the British Business Bank’s Small Business Finance Markets 2025/26 report, last year’s SME lending marked the second-highest level in the past 13 years, behind only the 2020 pandemic peak as credit conditions gradually eased.
The report found that the growth of non-bank lenders over the past decade means more than two-thirds (68 per cent) of SME lending in 2025 came from challenger and specialist banks or non-bank providers.
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Challenger and specialist banks accounted for 60 per cent of gross SME bank lending, excluding overdrafts, in 2025, up from 39 per cent in 2012. Their market share has now exceeded that of the UK’s big five banks for a fifth consecutive year.
“While economic conditions in 2025 continued to provide challenges for smaller businesses, lending markets are showing signs of positive improvement,” said Louis Taylor, chief executive of the British Business Bank. “Smaller businesses continue to show great resilience and determination to succeed and thrive, creating jobs and investment across the UK, although economic growth will require greater confidence to invest in new capacity and capability.”
Read more: British Business Bank announces five-year plan for financing small UK firms
The British Business Bank, the UK government’s economic development bank, aims to help smaller firms access the finance needed to start and scale. Its programmes currently support around £23bn of finance to nearly 64,000 businesses.
The report also highlighted the growing role of challenger and specialist lenders in driving technological innovation, helping to support new entrants such as “bank-in-a-box” platforms, software-as-a-service providers and digital-only finance firms.
Artificial intelligence (AI) is also capturing an increasing share of equity investment. Companies in the sector raised £2.9bn across 323 deals between the first and third quarters of 2025, the report found.
Read more: Private markets set for 2026 rebound as dealmaking activity rises
