Bank lending to small businesses across the UK has fallen by £27bn in just three years, with nine in 10 postcode sectors receiving less bank finance.
The widespread and sustained decline in high street bank lending means the amount of credit available to SMEs has fallen to its lowest level in more than a decade.
The findings come from analysis of UK Finance’s postcode lending dataset, which tracks SME loans and overdrafts outstanding across every postcode sector in Great Britain.
The scale of the decline
At the end of 2025:
Total SME lending stood at £62.6bn, down from £89.5bn in the second half of 2022.
That’s a fall of £26.8bn - or 30% - in just three years.
Lending fell by a further £6.5bn during 2025 alone.
Of more than 8,500 postcode sectors with active lending data, nine in 10 saw lending decline between 2022 and 2025.
Across those sectors, lending fell by an average of 36%.
The decline appears to be continuing, with 78% of postcode sectors saw lending contract over the past year.
For small businesses, finance can be crucial for everything from investing in equipment and premises to managing working capital and funding growth.
Where you are can make a big difference
The data also highlights a persistent geographical gap in access to bank finance.
Businesses in some parts of the UK receive considerably less bank lending than those in others.
Average lending per postcode sector was:
London: £12.5m
North East: £4.9m
Yorkshire & the Humber: £6.2m
North West: £5.3m
That means the average postcode sector in the North East receives around 2.5 times less bank lending than one in London.
The rise of the ‘credit deserts’
In 1,319 postcode sectors - around 12% of the total - lending is so limited that UK Finance suppresses the figures to protect customer confidentiality.
These areas can be thought of as ‘credit deserts’, where there is very little reported SME lending.
They are particularly concentrated in:
Scotland: 15.7% of postcode sectors have suppressed data
Wales: 13.8%
In other words, around one in six Scottish postcode sectors and one in seven Welsh postcode sectors have lending data suppressed because activity is so limited.
But finance is still flowing in some areas
The picture isn’t entirely one-way.
Around one in 10 postcode sectors saw SME lending increase between 2022 and 2025, and in some places, the growth was substantial.
For example:
PR5 6 in Preston: lending increased from £10.75m to £145.75m.
E1 7 in East London: lending grew by 488%.
OX1 4 in Oxford: lending grew by 438%.
This suggests that where the right combination of businesses, lenders and demand comes together, significant amounts of finance can still flow.
The South West had the highest proportion of postcode sectors where lending grew, at 17.3%, followed by Yorkshire & the Humber at 16.0%.
They were the only two regions where more than one in six postcode sectors saw lending increase.
Challenger banks are changing the SME lending landscape
While traditional high street bank lending has been falling, challenger and specialist banks are playing a growing role in financing small businesses.
The British Business Bank’s latest report shows that challenger and specialist banks now account for 60% of gross SME bank lending.
That compares with just 39% in 2012 and marks the fourth consecutive year in which challenger and specialist banks have accounted for more gross SME lending than the five largest high street banks.
And the shift goes beyond banking.
When non-bank lenders are included, 68% of all SME lending now comes from outside the traditional banking system.
What does this mean for you?
High street banks are lending less to small businesses, while challenger, specialist and non-bank lenders are taking a growing share of the market.
If you need finance, it can be worth looking beyond your usual bank. Knowing where to find the right finance could make all the difference to your business.
