New research by digital broker money.co.uk reveals a significant decline in high street bank lending to small and medium-sized enterprises (SMEs) in the UK, with total outstanding credit falling to its lowest level in over a decade.
According to analysis of UK Finance’s postcode lending data, which tracks SME loans and overdrafts across every postcode sector in Great Britain, total lending stood at £62.6bn at the end of 2025, a decrease of £26.8bn (30%) from its peak of £89.5bn in H2 2022. The data also shows that lending dropped a further £6.5bn in 2025 alone.
The Scale of the Decline
The decline in SME lending has been widespread, with nine out of ten postcode sectors experiencing a decrease in lending since 2022, with an average decline of 36% per sector. In the past year, 78% of sectors saw a contraction in lending, indicating that credit withdrawal is accelerating rather than stabilizing.
The data covers loans and overdrafts outstanding to small and medium-sized businesses and reflects the cumulative stock of bank credit available to UK businesses.
The decline follows a temporary peak in the post-pandemic period, when government-backed schemes such as the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loans artificially inflated lending volumes. However, the decline has now erased not only those gains but also a significant proportion of pre-pandemic lending. Total lending is now 14.5% below its pre-pandemic level of £73.3bn in Q4 2019.
Credit Deserts
In addition to the overall decline, the data highlights persistent geographic inequality in access to finance. In 1,319 postcode sectors (12% of the total), bank lending is so limited that UK Finance suppresses the figures to protect customer confidentiality. These ‘credit desert’ sectors are most prevalent in Scotland, where 15.7% of postcode sectors have suppressed data, and Wales, where the figure is 13.8%.
Regional Disparities
Even among sectors where data is published, there are significant regional disparities. For example, businesses in the North East receive 2.5 times less bank lending per postcode sector than those in London (£4.9m vs. £12.5m). The regions with the lowest average lending per sector are Yorkshire & the Humber (£6.2m) and the North West (£5.3m), both of which are significantly below the national median.
The Places Bucking the Trend
Although only a tenth of postcode sectors saw lending grow between 2022 and 2025, those that did experience significant growth. The most notable increase was seen in the postcode sector PR5 6 in Preston, where lending rose from £10.75m to £145.75m over the period. Other sectors that experienced significant growth include E1 7 in East London (488%) and OX1 4 in Oxford (438%). These figures suggest that in areas where there is a mix of businesses, lenders, and demand, credit can still flow in significant volumes.
The South West had the highest proportion of growing sectors (17.3%), followed by Yorkshire & the Humber (16.0%), the only two regions where more than a sixth of postcode sectors saw lending increase.
A New Lending Landscape
According to the British Business Bank’s latest report, challenger and specialist banks now account for 60% of gross SME bank lending, up from 39% in 2012. This figure has been higher than the big five high street banks for the past four years. When non-bank lenders are included, 68% of all SME lending now comes from outside the traditional banking system.
Expert Comment
Tom Luth, CEO of money.co.uk, said:
“The lending market is changing, giving small businesses more options for financing their growth. However, with more providers, products, and terms to consider, finding the right source of finance can be challenging.
“SMEs are the backbone of the UK economy, and access to finance can be crucial in turning growth ambitions into reality. For businesses operating outside areas where lending is most concentrated, understanding the available options is particularly important.
“That’s where money.co.uk can help. Our eligibility checker allows business owners to explore their options and see if they are eligible for a loan within minutes, without affecting their credit score.”
Matt Browning, money.co.uk business loans expert, shares three steps small businesses can take to improve their access to finance:
1. Use a Digital Broker
Many business owners are deterred from exploring finance due to concerns about credit checks. However, there are tools available, such as money.co.uk’s soft search eligibility checker, that allow you to check your eligibility with a soft search that will not impact your credit score.
It is useful to understand your options before making any
