Net lending plateaus in Q3 despite higher volumes for smallest firms
Lending to small and medium-sized enterprises (SMEs) continued to rise in the third quarter of 2025, but at a slower pace than earlier in the year, with net lending holding flat as firms maintained repayments and continued to manage legacy pandemic-era borrowing.
According to UK Finance’s latest Business Finance Review for Q3 2025, gross advances from the main high street banks to SMEs were just under £4.2 billion over the three months to the end of September, above the typical levels seen in 2023 and 2024. Year-on-year growth in lending eased to 6.4% for the quarter, compared with 8.3% in the previous three months.
The report comes against a backdrop of more cautious business sentiment ahead of the Budget, with a larger share of SMEs reporting concerns about the wider economic outlook, political uncertainty and government policy.
The pattern varied by business size. Borrowing by the smallest firms, with annual turnover under £2 million, remained comparatively robust, up 15% on the same quarter a year earlier. Lending to medium-sized enterprises was broadly unchanged on the quarter and 3% higher than in Q3 2024.
New loan and overdraft approvals also showed signs of cooling, the UK Finance report revealed. The total value of new facilities approved in Q3 was flat compared with a year earlier, marking the weakest annual growth rate in two years. The number of approvals was a little over 10% higher than in Q3 2024, but momentum has slowed since late last year.
Overdraft approvals fell back after strong demand in 2024, leaving volumes well below pre-pandemic norms. By contrast, new loan approvals retained some impetus, with the number of new loans nearly 12% higher than a year earlier. However, the average size of those loans declined by 12%, to just under £250,000, reflecting softer appetite among medium-sized borrowers.
Small business demand was a notable exception. The number of loans agreed with smaller firms rose by 21% compared with Q3 2024, with the total value of those loans up 25% over the same period.
Across sectors, the data showed slower growth in approvals for both production and services businesses, with volumes down in each area.
According to Gary Thompson (pictured right), sales director at Asset Advantage, the broad increase in SME lending aligned with what his firm was seeing through intermediary channels.
“Speaking with commercial brokers, it is clear that these enterprises are actively pursuing funding that helps them grow – whether that’s through asset finance or expansion-based lending,” he said. “In fact, our latest data points to asset finance and business acquisitions dominating funding demands in the coming 12 months.
“As we head into the New Year, this is hugely positive given the important role SMEs play as the engine room of the UK economy. Lenders and funders have a critical role to play in facilitating this by making sure they are responsive to the needs of these businesses.
“Rather than restrictive appetites to risk, we must be open-minded, pragmatic and willing to look outside the box to assist SMEs, support transactions and give brokers the tools they need. In doing so, we can give SMEs the confidence to deploy flexible funding for growth and expansion, rather than plugging short-term gaps.”
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