Document Type: Official UK Finance Report Analysis
Period Covered: January-March 2025
Publication Date: June 2025
Key Metric: £4.6 billion SME lending (+14% YoY)
UK business lending surged in the first quarter of 2025. Small and medium-sized enterprises (SMEs) received nearly £4.6 billion in gross lending from major banks. This marks a 14% increase compared to the same period last year.
The growth represents the highest lending levels since Q2 2022. Small businesses saw particularly strong growth of 30% year-on-year. This signals a gradual recovery in business finance after challenging economic conditions.
What: SME lending reached £4.6 billion in Q1 2025
Significance: Highest point in nearly three years
Context: Sixth consecutive quarter of lending growth
SME lending reached its highest point in nearly three years during Q1 2025. The main retail banks provided £4.6 billion in gross lending to businesses. This represents the sixth consecutive quarter of lending growth.
Small Businesses (under £2m turnover): +30% growth
Medium Businesses: +9% growth
Net Lending Status: First positive net lending since pandemic
The smallest businesses experienced remarkable growth in lending. Companies with turnover up to £2 million saw gross lending increase by 30% compared to Q1 2024. Medium-sized firms also benefited with 9% growth over the same period.
This strong performance helped push net lending for medium businesses into positive territory. This milestone marks the first positive net lending since the pandemic began.
Growth Sectors:
Cautious Sectors:
Lending growth varied significantly across different industries. Agriculture, manufacturing, wholesale, retail, and health sectors drove the Q1 increase. However, some consumer-facing sectors showed more cautious borrowing patterns.
GDP Growth: 0.7% (exceeded expectations)
Previous Quarter: 0.1% growth in Q4 2024
Services Growth: 0.7%
Manufacturing Recovery: 0.8% growth after a stagnant 2024
UK GDP grew by 0.7% in Q1 2025, exceeding expectations. This improvement followed weak 0.1% growth in the previous quarter. The broad-based growth helped boost business confidence across multiple sectors.
Bank Rate: Cut to 4.25% in May 2025
Rate Reduction: 25 basis points
SME Response: One-third of potential borrowers encouraged by lower rates
The Bank of England cut interest rates by 25 basis points to 4.25% in May. Lower borrowing costs made finance more attractive to SMEs. Around one-third of potential borrowers said lower rates would encourage them to seek funding.
Key Concerns:
Affected Sectors:
Despite positive GDP figures, survey indicators remained weak. Manufacturing PMI has stayed in contractionary territory since autumn 2024. Global trade tensions and US tariff concerns weighed on business sentiment.
New Loan Approvals: +37% year-on-year
Overdraft Approvals: +8% year-on-year
Growth Trend: Slowing from autumn 2024 peaks
Small Company Performance: Highest levels since early 2022
New loan approvals increased by 37% year-on-year in Q1 2025. Overdraft approvals grew by 8% compared to the same period in 2024. However, the pace of growth slowed from peak levels seen in autumn 2024.
Current Utilisation Rate: Below 50%
Comparison to Pre-Pandemic: Well below historical levels
Business Strategy: Precautionary rather than immediate needs
Despite increased overdraft approvals, utilisation rates remained below 50%. Usage levels stayed well below pre-pandemic levels across all sectors. This suggests businesses are seeking overdrafts as precautionary measures rather than immediate needs.
Year-on-Year Change: -3% decrease in Q1 2025
Trend: Decline rate moderating from previous quarters
Sector Impact: Consumer-facing industries are most affected
Industries Below Pre-Pandemic Levels:
SME deposit holdings fell by nearly 3% year-on-year in Q1 2025. However, the decline rate moderated compared to previous quarters. Consumer-facing industries recorded the biggest deposit falls.
Challenger Banks: Over 60% of SME lending market (2024)
Main Retail Banks: Increasing share with recent growth
Market Dynamics: Competitive supply across multiple lenders
Challenger and specialist banks increased their SME lending market share to over 60% in 2024. This growth came as main retail banks reduced their lending during the pandemic recovery period. The recent upturn in high street bank lending could reshape market dynamics.
Expected Trend: Further modest increases in SME lending
Growth Driver: Continued momentum in finance approvals
Limiting Factors: Trade policy uncertainty, domestic challenges
Investment Appetite Status:
Upcoming Government Announcements:
Potential Impact: More supportive environment for business planning and investment
Report Title: Business Finance Review 2025 Q1
Published By: UK Finance
Publication Date: June 2025
Data Period: January - March 2025
Report Type: Quarterly SME finance analysis
Primary Data Sources: Main retail banks' lending data
Geographic Scope: United Kingdom
Business Focus: Small and Medium-sized Enterprises (SMEs)
Key Report Sections Covered: