Bank lending to UK businesses has fallen to a 30-year low as a result of weak economic growth and tighter regulations.
Boston Consulting Group conducted research to determine the financial challenges faced by UK businesses and found that British bank loans to companies outside of the finance sector fell to 59 per cent of UK Gross Domestic Product (GDP) in the third quarter of last year.
This is a sharp drop from the days before the 2008 financial crash, when bank loans were roughly 90 per cent of GDP.
Of all the businesses in the UK, it is Small and Medium-sized Enterprises (SMEs) that are most disproportionately impacted by this severe drop in lending.
How do falling loans affect Small and Medium-sized Enterprises?
Given that SMEs make up 99.9 per cent of all UK businesses, it is concerning that SME-specific lending has almost halved over the last 15 years, according to Bank of England data.
It now sits at a 30-year low of 6.5 per cent of GDP in 2026.
Even across SMEs, the aversion is not universally felt, as those with physical assets may have a greater chance of securing a loan than those that are knowledge-based.
This is due to the ability for a bank to repossess assets if the SME defaults on the loan, something not all SMEs can leverage.
Rising insolvency rates are also adding pressure, as without bank overdrafts or bridge loans, many SMEs risk forced insolvency due to late payments from clients.
What is causing banks to avoid loaning to Small and Medium-sized enterprises?
The high-risk, low-profit nature of loaning to SMEs, largely as a result of the required due diligence such work entails, is a notable factor in why banks have moved away from SME lending.
Preferring a sense of familiarity, banks seem to be gravitating towards specific sectors, with the property sector alone attracting notable attention – real estate SMEs now receive 51 per cent of all loans.
Weak economic growth is cited as a reason by banks for a decline in demand for loans, but SMEs say they are too fearful of rejection to even attempt a loan application.
With all this in mind, SMEs should note that there are other options for financing a business and that getting professional financial advice is always wise.
Get in touch with our team for expert support in financing your business or if you are concerned about a lack of accessible funding.
