18th September 2026
Britain's small businesses appear to be borrowing substantially less from high street banks than they were a few years ago.
The amount of outstanding bank lending to small and medium-sized businesses across Great Britain stood at around £62.6 billion at the end of 2025. That was £26.8 billion, or about 30%, below the £89.5 billion recorded in the second half of 2022.
The figures come from an analysis by Money.co.uk of UK Finance data covering loans and overdrafts to SMEs across postcode sectors.
At first sight, it looks like a dramatic withdrawal of finance from Britain's small businesses.
But the story is more complicated.
It is not simply £27 billion of loans refused
The £26.8 billion is a reduction in outstanding lending, not a measure of loan applications rejected by banks.
A business repaying an existing loan reduces outstanding lending. So does a business deciding not to borrow in the first place, paying down an overdraft or refinancing with another type of lender.
There was also an exceptional period during the pandemic when government-backed schemes encouraged huge amounts of borrowing.
So it would be misleading to say that banks have simply taken £27 billion of finance away from small businesses.
Nevertheless, the underlying trend is significant.
The outstanding total at the end of 2025 was also below the roughly £73 billion recorded before the pandemic. In other words, this is not just a story about the unwinding of Covid-era borrowing.
Nine out of ten areas have seen lending fall
The geographical figures are perhaps even more revealing.
Money.co.uk's analysis found that nine out of ten postcode sectors experienced a fall in outstanding bank lending between 2022 and 2025.
Across those sectors, the average decline was about 36%.
During 2025 alone, lending fell in 78% of postcode sectors, with outstanding lending declining by around £6.5 billion, or 9.5%.
There is a particularly striking Scottish dimension.
Around 15.7% of Scottish postcode sectors had their lending figures suppressed because the numbers were too small to publish without potentially identifying individual businesses. That is the highest proportion of any UK nation or region covered by the analysis.
Money.co.uk describes these areas as "credit deserts".
That term needs some caution. A suppressed figure does not mean that no business can obtain finance. It means that the level of lending is sufficiently small that UK Finance does not publish the actual figure.
Nevertheless, it provides an indication of how uneven business lending can be geographically.
For rural Scotland, where businesses are often smaller and more dispersed, this is potentially important.
London gets considerably more bank finance
The geographical difference continues when published lending figures are compared.
Businesses in London's postcode sectors had average outstanding bank lending of around £12.5 million, compared with £4.9 million in the North East.
Yorkshire and the Humber averaged £6.2 million and the North West £5.3 million.
These figures should not be interpreted as meaning that an individual London business automatically gets more finance than an individual business elsewhere. They are averages of lending within postcode sectors, which can contain very different numbers and types of businesses.
But the regional differences are still striking.
They raise a broader question about whether Britain's financial system naturally concentrates more capital in areas where businesses are already larger and property values and investment opportunities are greater.
So are banks actually lending less?
Here the story takes an unexpected turn.
The latest British Business Bank figures show that gross SME bank lending increased by 9% to £68 billion in 2025.
So how can new lending be rising while outstanding lending is falling?
Because these are measuring different things.
Gross lending measures the amount of new lending taking place during a period. Outstanding lending measures the amount of debt still on the books.
If businesses are repaying old loans faster than they are taking out new ones, the total stock of lending can fall even while new lending is increasing.
The British Business Bank says the SME finance market showed signs of improvement during 2025, with credit conditions gradually easing.
This suggests that the figures should not be interpreted as evidence of a simple banking retreat from small business.
There may instead be a combination of businesses becoming more cautious about taking on debt, existing loans being repaid and a changing market for business finance.
The high street banks are no longer the whole market
Perhaps the most interesting change is what has happened to the lenders themselves.
The British Business Bank reports that challenger and specialist banks accounted for 60% of gross SME bank lending in 2025, compared with 39% in 2012.
In 2025 they provided about £40 billion of gross SME lending, compared with £27 billion from the five largest banking groups.
There has therefore been a major shift in where small businesses obtain finance.
And the wider market is even more diverse. The British Business Bank says that when non-bank lenders are included, 68% of overall SME lending in 2025 came from challenger and specialist banks or non-bank lenders.
That helps explain why looking only at high street bank lending could give an incomplete picture.
A business that cannot, or does not want to, borrow from its traditional bank now has considerably more alternatives than it did a decade ago.
Why might businesses be borrowing less?
One possibility is that many businesses simply do not want to take on additional debt.
Borrowing became considerably more expensive when interest rates rose after 2021. Even though rates have subsequently fallen, businesses remain conscious that borrowing has a cost.
There is also the uncertainty surrounding the economy.
A business owner considering a £50,000 loan to expand a shop, buy equipment or employ additional staff needs to be reasonably confident that the additional sales will justify the repayments.
If demand is uncertain, keeping debt low can look more attractive.
The British Business Bank found that around half of smaller businesses used some form of external finance in 2025. Credit cards and overdrafts remained among the most commonly used forms, suggesting that some businesses are using finance to manage cash flow rather than to fund major expansion.
What does this mean for Britain's economy?
This is where the numbers become more important.
Small businesses account for a very large part of employment and economic activity. If viable businesses cannot obtain finance when they need it, investment can be delayed.
A builder may postpone buying equipment.
A manufacturer may delay replacing machinery.
A shop may decide against expanding.
A growing business may decide not to take on another employee.
None of these decisions necessarily shows up immediately in unemployment figures or economic growth statistics. But collectively they can affect productivity and investment.
On the other hand, borrowing less is not automatically bad.
A business that has reduced its debt because it is generating enough cash to finance itself may actually be in a stronger position.
The real question is therefore not simply "Why are businesses borrowing less?"
It is "Are businesses borrowing less because they cannot get finance, because they do not want finance, or because they have less need for it?"
The available evidence suggests that all three factors may be involved.
A changing financial landscape
The big picture is therefore more complicated than the £27 billion headline suggests.
Outstanding high street bank lending to SMEs has fallen sharply since 2022 and is below its pre-pandemic level. At the same time, new SME bank lending increased during 2025 and challenger and specialist banks now account for a majority of gross SME bank lending.
For small businesses, particularly outside the major cities, the practical lesson may be that the traditional high street bank is no longer the only place to look for finance.
The growth of challenger banks, specialist lenders and other forms of business finance has created more choice.
But the postcode figures suggest that access to finance is still far from evenly distributed.
For Scotland, where almost one in six postcode sectors has lending data suppressed because the level is so small, that is an issue worth watching.
Britain may have more business lenders than it did a decade ago.
The bigger question is whether those lenders are reaching the businesses and places that need the money most.