Outstanding high street bank lending to small and medium-sized businesses across Great Britain fell by £26.8bn, or 30 per cent, in three years to stand at £62.6bn at the end of 2025, according to analysis of UK Finance data by digital broker money.co.uk.
The figure compares with £89.5bn in the second half of 2022. Lending dropped by a further £6.5bn, or 9.5 per cent, in 2025 alone, the analysis found.
The research draws on UK Finance’s SME lending within UK postcodes dataset for the second half of 2025, published on 30 June 2026. It tracks loans and overdrafts outstanding to SMEs in every postcode sector in Great Britain and measures the stock of credit rather than new lending.
Decline across nine in 10 sectors
Of more than 8,500 postcode sectors with active lending data, nine in 10 recorded a fall between 2022 and 2025, with an average decline of 36 per cent per sector, according to money.co.uk. In the past year, lending contracted in 78 per cent of sectors, which the broker said suggests credit withdrawal is accelerating rather than stabilising.
The analysis links the decline to an artificial peak in the immediate post-pandemic period, when government-backed schemes such as the Coronavirus Business Interruption Loan Scheme and Bounce Back Loans inflated lending volumes.
According to money.co.uk, the fall has now erased those gains and a significant share of pre-pandemic lending. Total lending is 14.5 per cent below its level of £73.3bn in the fourth quarter of 2019.
Credit deserts and regional gaps
In 1,319 postcode sectors, 12 per cent of the total, lending is so limited that UK Finance suppresses the figures to protect customer confidentiality. Suppression typically applies where fewer than three businesses have outstanding lending. The analysis describes these areas as credit deserts.
Scotland has the highest proportion, with one in six postcode sectors, or 15.7 per cent, showing suppressed data. In Wales the figure is one in seven, or 13.8 per cent.
Among sectors where data is published, businesses in the North East receive an average of £4.9m in bank lending per postcode sector, against £12.5m in London, a gap of 2.5 times. Yorkshire and the Humber averages £6.2m per sector and the North West £5.3m, both below the national median, the analysis found.
The findings follow British Business Bank research reported by Business Matters last year showing that access to finance remains a postcode lottery for small firms.
Where lending grew
Only a tenth of postcode sectors saw lending increase between 2022 and 2025. The largest rise was in PR5 6 in Preston, where lending climbed from £10.75m to £145.75m, an increase of 1,256 per cent. Money.co.uk said it has not verified the cause of the increase.
E1 7 in East London grew by 488 per cent and OX1 4 in Oxford by 438 per cent.
By region, the South West had the highest proportion of growing sectors at 17.3 per cent, followed by Yorkshire and the Humber at 16 per cent. They were the only two regions where more than a sixth of sectors recorded growth.
Shift to challenger lenders
The British Business Bank found that challenger and specialist banks accounted for 60 per cent of gross SME bank lending, excluding overdrafts, in 2025, up from 39 per cent in 2012.
Over two thirds, or 68 per cent, of overall SME lending in 2025 came from challenger and specialist banks or non-bank lenders, according to the state-owned bank. Business Matters reported in March that challenger banks held 60 per cent of SME lending in 2025, with their share unchanged on the previous year.
Tom Luth, chief executive of money.co.uk, said: “The lending market is changing, and it’s giving small businesses more options when it comes to financing their growth. But with more providers, products and terms to consider, finding the right source of finance can be challenging.”
He added: “SMEs are the backbone of the UK economy, and access to finance can be an important part of turning growth ambitions into reality. For businesses operating outside areas where lending is most concentrated, understanding the options available is particularly important.”
Jamie Young
Jamie Young is Senior Reporter at Business Matters, covering SME finance, employment law and Westminster policy since 2016. He has reported on every Budget and Autumn Statement since 2018, helped make sense of the 'covid era' and the bounce-back loan scheme from launch through the fraud investigations, and broke the magazine's coverage of the 2024 late-payment reforms. He joined Business Matters straight from completing his BA in Administration from Exeter University and is NCTJ-qualified. Reach him at jyoung@cbmeg.co.uk
