New research by digital broker money.co.uk has revealed a sustained and widespread decline in high street bank lending to UK small businesses, with total outstanding SME credit falling to its lowest level in more than a decade.
Analysis of UK Finance’s postcode lending dataset, which tracks SME loans and overdrafts outstanding across every postcode sector in Great Britain, found that total lending stood at £62.6bn at the end of 2025, down from £89.5bn in H2 2022.
That represents a fall of £26.8bn, or 30%, in just three years, with lending dropping a further £6.5bn in 2025 alone.
The scale of the decline
The fall in SME lending is near-universal. Of more than 8,500 postcode sectors with active lending data, nine in 10 saw a decline between 2022 and 2025, with an average drop of 36% per sector.
Over the past year, 78% of sectors saw lending contract, suggesting credit withdrawal is accelerating rather than stabilising.
The data covers loans and overdrafts outstanding to small and medium-sized enterprises, and reflects the cumulative stock of bank credit available to UK businesses.
The decline follows an artificial peak in the immediate post-pandemic period, when government-backed schemes such as Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loans inflated lending volumes — but the fall has now erased not just those gains, but a significant proportion of pre-pandemic lending too. Total lending is now 14.5% below its pre-pandemic (Q4 2019) level of £73.3bn.
Credit deserts
Beyond the overall decline, the data reveals 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 concentrated most heavily in Scotland, where one in six postcode sectors(15.7%) have suppressed data, and Wales, where the figure is one in seven (13.8%).
Even among sectors where data is published, the regional disparities are significant. North East businesses receive 2.5x less bank lending per postcode sector than those in London (£4.9m vs £12.5m). Yorkshire & the Humber (£6.2m average per sector) and the North West (£5.3m) also sit well below the national median.
The places bucking the trend
Only a tenth of postcode sectors saw lending grow between 2022 and 2025 — but those that did grew significantly. The postcode sector PR5 6 in Preston recorded the largest increase, with lending rising from £10.75m to £145.75m over the period. E1 7 in East London grew 488%, and OX1 4 in Oxford grew 438%, suggesting that where the right mix of businesses, lenders and appetite aligns, credit can still flow in volume.
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 and higher than the big five high street banks for the fourth consecutive year. 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, 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.
“That’s where money.co.uk can help. Our eligibility checker allows business owners to explore their options and see whether they may be eligible for a loan in minutes, without affecting their credit score.”
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