Smaller business lending markets showing signs of improvement

Business dynamism is showing signs of improvement, with 314,000 start-ups created in 2025, up 1% on the previous year, and with a net rise in the overall business population.

External finance remains widely used, with around 50% of smaller businesses using external finance in 2025. Credit cards (19%) and overdrafts (16%) were the most used products in Q3 2025, alongside leasing and hire purchase (13%), reflecting increased use of flexible, short-term finance.

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 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.

AI is attracting a significant share of equity investment. AI companies raised £2.9bn across 323 deals in Q1-Q3 2025, accounting for around two-fifths of total UK equity investment, highlighting a strong investor focus on innovation.

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.

Following the recent Spending Review, we are increasing our annual funded commitments to around £2.5bn – a two-thirds increase – and issuing around £2.1bn annually in guarantees to help even more smaller UK business to start up, scale up and stay in the country to achieve their growth potential".

If you’re a small business looking to strengthen your growth, explore new funding options or overcome barriers to finance, contact the Business Doncaster team on 01302 735555/ info@businessdoncaster.com to discover the latest financial opportunities available.

This article was authored by the British Business Bank and published under the title 'Smaller business lending markets showing signs of improvement, finds latest British Business Bank research', on Press release - 17 March, 2026 | British Business Bank  It is reproduced above in accordance with section 30(2) of the Copyright, Design and Patents Act 1988.