Small business lending surged to near-record in 2025

Gross SME bank lending increased by 9% to £68 billion in 2025, marking the second highest level in the past 13 years, after 2020’s COVID peak. These statistics have been found by British Business Bank’s Small Business Finance Markets 2025/26 report.

In the UK, 314,000 startups were created in 2025, up 1% from the previous year, and a net rise in the business population.

Small businesses continued to widely use external finance, with around 50% of smaller businesses using external finance in 2025. Credit cards (19%) and overdrafts (16%) were the most commonly used products in Q3 2025, alongside leasing and hire purchase (13%), reflecting increased use of flexible, short-term finance. This suggests that debt finance is being used for stability, rather than growth.

There is now a 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.

A diverse mix of lenders

A more diverse mix of lenders, products, and businesses is reshaping competition within the UK, supporting innovation and expanding choice.

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.

Challenger and specialist banks also continue to play a leading role in technological advancements and have helped facilitate new entrants, such as ‘bank in a box’, Software as a Service (SaaS), and digital-only finance providers.

AI is attracting significant equity investment

It is no surprise that AI is attracting a significant share of equity investment. AI companies raised £2.9 billion across 323 deals in Q1-Q3 2025, accounting for around two-fifths of total UK equity investment, highlighting a strong investor focus on innovation.

Diversity remains an issue

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).

See Also

Bisly raises €4.3M to expand AI-powered building automation

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 of major urban centres.

Businesses located in rural and coastal areas, female, and ethnic minority-led businesses all face the greatest challenges raising finance. 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, 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.”