UK Finance published its Business Finance Review for Q3 2025, which found that while small and medium-sized enterprise (SME) lending continued to grow year on year, the pace of growth slowed in the three months to September.
Repayments stayed steady while SMEs continued to manage debt and pandemic funding, leaving net lending flat for the quarter.
Gross lending to SMEs by main High Street lenders came in just under £4.2bn, above the average for 2023 and 2024.
Lending growth slowed to 6.4% higher than the same quarter last year, down from 8.3% in Q2.
Business sentiment in the run up to the budget was subdued, with more SMEs concerned about the economic climate, political uncertainty and Government policy.
Gross lending to the smallest businesses (under £2m turnover) stayed strong, up 15% on Q3 last year.
Lending to medium-sized businesses was flat and up 3% year on year.
Growth in new loan and overdraft approvals levelled off, with the value flat in Q3 compared to last year, the weakest growth for two years.
The number of approvals was up just over 10% year on year but has slowed since late 2024.
Overdraft approvals dropped after surging in 2024, leaving approvals well below pre-pandemic levels.
New loan approvals kept some momentum, up nearly 12% on a year ago, but the average loan value dropped 12% to just under £250,000.
This was mainly due to weaker demand from medium-sized businesses.
Loans to small businesses were up 21% in number and 25% in value compared to last year.
By sector, growth in finance approvals has slowed for both production and services, with volumes down for both.
Gary Thompson, sales director at Asset Advantage, said: It is really encouraging to see yet another rise in SME lending, which certainly mirrors what we are seeing on the ground.
“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.
“In fact, our latest data points to asset finance and business acquisitions dominating funding demands in the coming 12 months.”
Thompson added: “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.”
He said: “In doing so, we can give SMEs the confidence to deploy flexible funding for growth and expansion, rather than plugging short-term gaps.”
