Small business bank lending falls £27bn in three years as nine-in-10 areas see decline

Outstanding loans and overdrafts to SMEs across Great Britain have fallen 30 per cent since 2022, with businesses in the North East receiving less than half the lending seen in London

Bank lending to small businesses across Great Britain has fallen by almost £27bn in just three years, with nine in 10 postcode sectors receiving less finance than in 2022, new analysis suggests.

Outstanding SME loans and overdrafts stood at £62.6bn at the end of 2025, down from £89.5bn in the second half of 2022 – a fall of £26.8bn, or 30 per cent. Lending dropped by another £6.5bn in 2025 alone.

The figures come from money.co.uk analysis of UK Finance postcode lending data covering more than 8,500 areas across Great Britain.

Some 90 per cent of postcode sectors with active lending data were found to have recorded a decline between 2022 and 2025, with the average sector seeing outstanding credit fall by 36 per cent. In the most recent year alone, lending contracted in 78 per cent of areas.

The fall partly follows the winding down of government-backed pandemic lending schemes, which pushed borrowing sharply higher after Covid. But total outstanding lending is now also 14.5 per cent below its pre-pandemic level of £73.3bn at the end of 2019.

The analysis also found sharp regional differences. Businesses in the North East had an average £4.9m of outstanding bank lending per postcode sector, compared with £12.5m in London. The North West averaged £5.3m and Yorkshire and the Humber £6.2m.

In 1,319 postcode sectors – around 12 per cent of the total – UK Finance suppresses lending figures to protect customer confidentiality, typically where fewer than three businesses have outstanding borrowing. Money.co.uk describes these areas as “credit deserts”.

Scotland had the highest proportion of such areas at 15.7 per cent, followed by Wales at 13.8 per cent.

Only around one-in-10 postcode sectors recorded an increase in lending over the three years. PR5 6 in Preston saw the largest rise, from £10.75m to £145.75m, while E1 7 in East London increased 488 per cent and OX1 4 in Oxford rose 438 per cent.

The figures also reflect a changing lending market, with challenger and specialist banks now accounting for 60 per cent of gross SME bank lending, up from 39 per cent in 2012. Including non-bank lenders, 68 per cent of SME lending now comes from outside the traditional banking system.

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.

“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.”

READ MORE: UK government must “think again” about small business plan. Business and Trade Committee says government response fails to address tax, energy, procurement and crime pressures facing firms. 

Do you have news to share or expertise to contribute? The European welcomes insights from business leaders and sector specialists. Get in touch with our editorial team to find out more.

_{Main image: Vitaly Gariev via Pexels}