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The UK’s business lending landscape is changing year over year. Recent data shows continued growth in volumes, shifts in who provides credit, and persistently low usage of external finance by many SMEs.
At Rise Funding, we have an overview of SMEs in the UK and help these small businesses get the funding they deserve.
Here are the top business loan statistics that UK entrepreneurs and SMEs should know for 2026.
Table of Contents
1. UK business population ~5.7 million in 2025
For context, the UK’s business base continues to grow. Official figures report about 5.7 million private-sector businesses at the start of 2025. The vast majority (over 99%) are SMEs (under 250 employees). This was a 3.5% increase from the previous year. More businesses means more potential demand for loans, but with weak demand per business, average lending per firm remains modest.
2. Gross SME bank lending hit £68 billion in 2025
Lending volumes to smaller businesses began to recover in 2025. The British Business Bank reports that gross bank lending to SMEs rose 9% to about £68 billion in 2025.
This was the second-highest annual total on record (behind 2020’s pandemic peak). The rise came after several years of subdued lending growth, indicating growing bank willingness to lend to SMEs as credit conditions eased.
3. Challenger banks now account for 60% of SME loans
Building on the previous stat, challenger and specialist lenders have become dominant providers of business loans. In 2024, these newer or non-traditional banks accounted for about 60% of gross SME lending.
In other words, big established banks (e.g. the old “big five”) are no longer the main source of SME loans. The trend has continued: by 2025, the British Business Bank notes that nearly two-thirds of SME lending came from challengers or non-bank lenders. This diversification means more competition and choice for borrowers, but also more complexity in the market.
4. About half of small businesses used external finance in 2025
Despite higher lending volumes, only a minority of SMEs actually use external finance at any given time. The latest figures from 2025 show roughly 50% of smaller UK businesses had some form of external finance (loans, overdrafts, etc.).
In practice, this means that about one in two companies relies on outside funding. The remaining half manages growth and expenses using only internal funds or savings. (By comparison, before the COVID shock, surveys suggested around 60–70% of SMEs used finance.)
5. External finance fell in 2024: only 43% of SMEs by mid-2024
Indeed, the share of firms using finance has been trending down. A British Business Bank report found that in mid‑2024, only 43% of smaller UK businesses were using any external finance (down from 50% in late 2023). In other words, fewer than half of SMEs had a loan or credit line at that point. This decline reflects both weaker demand and higher borrowing costs: many businesses prefer to sit on cash reserves rather than borrow at today’s interest rates.
6. Only 44% of SME loan applications are approved
Business owners face tough odds when applying for bank loans. Industry data show that just 44% of UK SME loan applications were approved in recent surveys. That means more than half of loan applications are turned down (56% rejection). Approval rates have slid sharply since the pre-pandemic period, when about 70–80% of applications succeeded.
To improve approval chances, careful preparation is vital. We have a guide on preparing your business loan proposal that recommends compiling strong financial documents and a clear funding plan.
7. 35% of UK SMEs are permanent non-borrowers
A striking statistic is that around a third of small businesses never borrow at all. In mid-2024, about 35% of UK SMEs were “permanent non-borrowers” – they had no loan or credit line. Many of these firms rely entirely on retained earnings or personal funds for investment and cashflow. This mindset partly explains the low demand for lending: some businesses simply choose not to engage with banks, or fear high borrowing costs.
8. Credit cards are the most common finance tool (20%)
Among SMEs that do use credit, credit cards are the single most common form of borrowing. Roughly 20% of all small businesses finance themselves with business or personal credit cards. In fact, credit card debt accounts for about 20% of the total business finance stock – a larger share than any other product.
High-interest credit cards have become a substitute for short-term cash flow needs, even though they are not ideal for long-term funding. The next-most-popular borrowing tools are bank overdrafts (used by about 15–16% of SMEs) and equipment lease/asset finance (around 13%).
9. 30% of SMEs use personal funds to finance the business
Personal funding remains common: roughly 30% of small businesses turn to personal savings, credit cards, or loans to keep the business running. This includes sole traders and small partnerships drawing on personal credit lines. In practice, many entrepreneurs use a mix of personal and business financing. This statistic underlines the blurred line between owner and business finances for smaller firms.
10. Average interest on new SME loans ~6% (late 2025)
Borrowing has gotten more expensive. Bank of England figures show that by October 2025, the average effective interest rate on new business loans to SMEs was around 6.3%, compared to only about 3% in the late 2010s. Even short-term credit lines like overdrafts or credit cards often carry interest well into double digits. With rates now significantly higher, many owners are reluctant to take on new debt. (For comparison, large companies saw average rates of about 5.8% in late 2025.)
11. Net new lending to SMEs remained slightly negative in 2025
Despite rising gross lending volumes, SME net borrowing (lending minus repayments) is still in negative territory. UK Finance data for Q2 2025 showed net lending to SMEs at about –£1.1 billion (repayments exceeded new advances). This represents the smallest negative figure since before the pandemic support period. SMEs are still paying down debt built up earlier and running down cash buffers. Once net lending turns positive, it will signal true growth in business credit.
12. Alternative finance and asset funding are rising
Specialist asset finance providers, invoice-finance houses and digital lenders now play a much bigger role than a decade ago, and FLA members reported~£23.5 billion of asset finance provided in 2024. This supports equipment investment by SMEs.
What these business loan statistics mean for your business
Overall, these stats paint a mixed picture: lending volumes are recovering from recent lows, and challenger banks dominate the market, but many SMEs still hesitate to borrow. Higher borrowing costs and tight credit standards mean fewer loan approvals and heavy reliance on internal funding. Businesses that do seek loans must prepare carefully – for example, by improving their business credit score and having organised documentation (as in our loan qualification guide). Understanding these trends will help UK SMEs plan their finance strategy for 2026 and beyond.
If you are looking for a business loan, Rise Funding can help find the best option for you. Whether it’s this type of loan or others, we’re here to help you make a decision with confidence.
Contact us via the form below, or get an instant business quote through our online questionnaire.
