In an encouraging trend, high street banks have significantly increased their lending to small businesses in 2025, according to recent statistics released by UK Finance. This marks the sixth consecutive quarter of growth in lending.

For businesses generating less than £2 million in revenue, lending has surged by 30% in the first quarter of 2025 compared to the same timeframe in 2024. The total amount lent to small and medium-sized enterprises (SMEs) reached nearly £4.6 billion, the highest figure since the second quarter of 2022. Despite this rise, UK Finance remarked that overall SME lending still lags notably behind levels typical before the COVID-19 pandemic.

David Raw, managing director of commercial finance at UK Finance, stated, “In recent months, we’ve observed that traditional high street banks, including NatWest, HSBC, Lloyds, and Barclays, are increasing their lending to SMEs. These banks are acknowledging the challenging economic landscape and reassessing their appetite for risk.”

This increase in lending follows a period when traditional banks had been more hesitant to provide funding, leading to a rise in loans from newer challenger banks. Reports from the British Business Bank revealed that in 2024, challenger and specialized banks were responsible for 60% of SME lending.

Additionally, research released in April by Allica Bank, a challenger bank focused on SME financing, indicated that lending to small businesses was approximately £90 billion lower than it would have been, had it maintained the lending levels observed from 1997 to 2004.

Raw highlighted that the loans being provided were primarily aimed at addressing immediate cash flow challenges, though he expressed a desire for increased long-term investment in businesses.

He advocated for an expansion of the “growth guarantee scheme,” which enables the government to back bank loans to small enterprises and is managed by the British Business Bank, noting that such expansions would further encourage banks to extend lending to a broader array of SMEs.

The government reintroduced this scheme in July of the previous year, with the chancellor announcing an additional lending capacity of about £500 million in April 2025.

Raw concluded, “This scheme could significantly assist smaller SMEs that lack collateral. Many of our members, including prominent ones, consistently indicate that they could lend two or three times more if the scheme were broadened.”