Business lending by high street banks increased in the first quarter of 2025 to £4.6 billion, a sixth consecutive quarterly rise and the highest amount since the second quarter of 2022, the latest data from UK Finance shows.
This represents a 14% increase year-on-year, with the rise driven by agriculture, manufacturing, wholesale and retail, and health sectors.
Lending to the smallest businesses (up to £2 million annual turnover) was particularly strong, up nearly 30% year-on-year, whilst lending to medium-sized businesses increased 9%.
Loan and overdraft approvals increased year-on-year. Compared with Q1 2024, the number of new loans and overdrafts approved were 37% and 8% higher respectively.
The number of new finance approvals continue to vary across sectors, though in almost all sectors the volume of approvals in Q1 was up on the same period a year ago. While the number of applications approved is on the increase, the value of approvals in the quarter was down on a year ago.
SMEs continue to retain a reasonable degree of headroom within their existing finance facilities with utilisation rates having stayed consistent at around 50%. This suggests the ongoing demand for new or increased facilities is a precautionary move in the face of risks of rising costs and renewed pressure on margins.
David Raw, managing director of Commercial Finance at UK Finance, said: “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.
“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.
“Banks have finance available for SMEs, enabling them to invest and grow. The industry will continue to work with businesses, government and regulators to support both the supply and demand of finance, driving economic growth.”
Neil Rudge, chief banking officer of commercial at Shawbrook, commented: "The latest UK Finance data reveals a welcome rise in lending to UK SMEs in Q1 2025 – a trend echoed in our own research, which found nearly one in five small and medium-sized businesses plan to secure fresh funding this year.
"Yet despite this uptick, uncertainty still dominates. Over 40% of SMEs say the recent NIC increase will hit their business prospects, while 78% of leaders remain concerned about the ongoing pressure of inflation.
"Even so, resilience runs deep. More than 70% of SMEs reported growth over the past year – with 15% attributing that progress to new funding. Looking ahead, three-quarters feel optimistic about the year to come, and a quarter are strongly confident about their prospects.
"The real issue isn’t the availability of capital – it’s the appetite for it. In a landscape marked by caution, what matters most is the quality of finance on offer. Tailored, flexible solutions will be critical in helping businesses turn tentative optimism into meaningful investment and long-term growth."
