SME Lending Surges to £17.5bn as Small Businesses Fuel UK AI Growth

UK Finance’s latest Business Finance Review shows that UK high street banks increased gross business lending to £17.5bn in 2025, up from £16.1bn the previous year, marking the second consecutive year of growth.

Momentum accelerated through the year, with £4.6bn lent in the final quarter alone, extending the streak to eight straight quarters of year-on-year growth. 

The surge was driven primarily by small businesses with up to £2 million in annual turnover, where lending increased by more than a quarter compared to a year ago, supported by a steady rise in loan approvals throughout the year.

Medium-sized firms saw more modest growth at 4 per cent, while lending was evenly distributed across the UK, highlighting broad-based support for SMEs nationwide.

Overall, 2025 was a stronger year for new loan approvals compared with overdraft facilities, a reversal of the trend seen in 2024.

Despite this, utilisation of existing overdrafts remains below pre-pandemic levels, suggesting businesses are maintaining financial headroom as they navigate ongoing uncertainty and pressure on margins.

David Raw, Managing Director of Commercial Finance at UK Finance said: “SMEs are a vitally important part of the UK economy and the banking sector is proud to support them. It was good to see gross lending increasing for another consecutive year of growth in 2025, driven by stronger demand from the smallest businesses and support from high street lenders. 

However, Raj Abrol, CEO, Galytix said: “It’s encouraging to see SME lending on the rise, but these figures are a drop in the ocean compared to actual amounts needed to reboot the global economy. Scale-up companies rely on support from banks to invest in new technology, expand into new markets and hire talent, yet far too many struggle to secure the support they need due to outdated operating models and risk profiling.

For many of the big banks, SME lending is a more of a headache than its worth, with the same rules and paper-work heavy processes applied if the application were for a large corporate. AI agents can change all this, they do not get tired, do not miss details, and do not forget what they learned last quarter, so can rapidly prepare a loan application for approval.

If we want to give the next generation of businesses the support they need to thrive, it’s vital that AI is harnessed to make life easier for both banks and entrepreneurs. SMEs are the lifeblood of economic growth, the practice of locking them out of the funding market due to technicalities cannot continue.”

Fintech expert Kenny MacAulay, CEO of accounting platform Acting Office said: “Without access to finance, SMEs will fall drastically behind in the race for AI adoption, which in turn will hit the economy hard. It’s great to see an uptick in lending at a time when so many organisations are at a crossroads with tech investment, but these numbers don’t even begin to cover the amounts need to long term change. With this in mind, it’s vital that the government works closely with banks to encourage and expanding lending programmes, in order to build an AI-ready economy fit for the future.”