Gross SME bank lending increased by 9% to £68bn in 2025, making it the second highest level in the past 13 years after 2020’s Covid peak, the latest data from the British Business Bank shows.
External finance remains widely used, with around 50% of smaller businesses using it in 2025. Credit cards (19%) and overdrafts (16%) were the most commonly used products in Q3 2025, alongside leasing and hire purchase (13%). This suggests, however, that debt finance is being used for stability rather than growth.
There is an accompanying broader awareness of finance options, with 62% 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 banks’ market share exceeded big five banks for the fifth consecutive year
Challenger and specialist banks accounted for 60% of gross SME bank lending (excluding overdrafts) in 2025, up from 39% in 2012. The growth of non-bank lenders over the past decade means over two thirds (68%) 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.
However, the data shows that significant challenges in accessing finance remain for some under-represented groups and geographical areas.
Ethnic Minority-led businesses show stronger ambition for growth and willingness to use finance. The report found that 71% aim to become significantly larger (vs 40% of White-led businesses), and 52% are willing to use finance to grow (vs 35% of White-led businesses).
However, they are also more likely to anticipate difficulties accessing finance (51% vs 36% of White-led businesses), highlighting persistent barriers for under-represented groups and businesses outside major urban centres.
Businesses located in rural and coastal areas, women and Ethnic Minority-led businesses all face the greatest challenges raising finance. However, there is positive evidence to suggest that increased diversity of senior decision makers leads to a greater likelihood of diverse founders being able to secure investment.
Louis Taylor, CEO of the British Business Bank, said: “While economic conditions in 2025 continued to provide challenges for smaller businesses, lending markets are showing signs of positive improvement. 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.”
