The importance of the UK’s SME cohort is pretty well understood. There are about 5.5m SMEs, employing more than 16.5 million people[1], and accounting for more than 48% of business turnover. [2]
But while there’s a huge amount of latent potential scattered across the UK, it can only be fully realised if the correct conditions are created – a new eco-system that is better able to respond to the lending requirements of growing business.
Tackling that issue is the focus of the formal ‘Small Business Access to Finance Call for Evidence’ which was launched by the government in March. Tasked with investigating why small businesses continue to face barriers accessing affordable finance, despite an expanding and increasingly diverse lending market, the hope is that it results in tangible policy changes. Only then will the government be able to meet its ambitious short, medium, and long term growth targets.
The lending landscape at a glance
It’s quite easy to forget quite how much has changed in the last few years. After the global financial crisis in 2008, around 90% of SME lending was provided by the four largest banks[3]. Now, however, non-traditional lenders provide the majority of SME lending – equal to 60% of annual gross bank lending to SMEs in 2024[4]. Notably, since 2014, 36 new banking licences have been issued to SME lenders.[5]
But as it currently stands, the state of the UK lending landscape is not currently there to support the ambitions of current and future SMEs. The appetite for both looking for and giving credit seems to have been significantly curtailed.
The UK has one of the lowest levels of borrowing by non-financial businesses as a percentage of GDP among G7 countries – a structural weakness that constrains investment, productivity and long-term growth. Figures also reveal that bank SME loan margins are lower than the 1990s, despite a material increase in capital requirements, with lending much more focused on very low risk outcomes as a result.[6]
Part of the challenge is destigmatising ‘debt’ and supporting businesses that have ambition, but have traditionally been discouraged by lenders’ limited appetite to fund their growth. It should be a worry to a pro-growth government that the Bank of England’s 2024 SME Finance Survey found that 77% of SMEs say they would prefer to grow slowly rather than borrow to expand at a faster rate[7]. Figures also show that 60% of businesses are not going ahead with investment due to prioritising building up cash reserves[8]
But another contributing factor is undoubtedly also the UKs shift toward a more service focused economy, with the sector now making up 81% of UK GDP. As these businesses typically lack tangible ‘big item’ collateral, they can find their ‘borrow to invest’ options much more limited, meaning that their growth opportunities may well be restricted.
The SME Lending review
It is challenges such as these that the governments’ SME lending review must tackle head-on. Despite the review having received relatively little public attention, if executed properly, its impact could be transformative.
There is rightly some frustration at what can be seen as just another round of consultation. This is exacerbated by the feeling that some of the most recent challenges facing business have been created as a result of the current governments’ policies – notably the hike in Employer National Insurance Contributions.
But with finance providers and businesses very clear on the barriers in providing and accessing debt finance, the review is an opportunity for the industry to very clearly set out how far existing policies meet the needs of business and the lending sector in overcoming barriers to finance, as well as detail where the government must go further to create growth through its support for SMEs and the lending sector.
Building a better ecosystem
The key to unlocking growth is working together – encouraging and empowering the numerous parts of the financial sector to collaborate with the aim of delivering a better lending experience for businesses.
This means greater collaboration between big banks and specialist lenders – like Simply. Allowing the heritage and trust of big banks with more ability to take on risk, to be combined with the personalised approach and on-the ground expertise of newer, tech-enabled lenders.
It means embedding with vendors (embedded finance) so that lenders are able to meet SMEs where they do business and secure lending at the press of a button – minimising friction at the point of sale or purchase of assets.
And it also means partnering with other lenders to expand access to different products and referrals, giving businesses the best opportunity to have access to finance when they need it most.
Looking at the bigger picture, the Invest 2035 industrial strategy is a huge opportunity. Due in June, its ambition is to set out a 10-year plan to deliver the certainty and stability businesses need to invest in the high growth sectors that will drive our growth mission, creating the right conditions for increased investment, high-quality jobs and ensuring tangible impact in communities right across the UK.
This has the potential to act as a powerful growth catapult for SMEs across the UK. But it is imperative that they are given the opportunities and access to funding needed to make that a reality.
The UK is bursting with potential, and the innovation, ingenuity and passion demonstrated by UK SMEs should give great confidence to the government about its growth targets. But businesses can’t do it alone. They need an agile and supportive ecosystem that will enable them to successfully pursue their ambitions.
Mike Randall is the CEO at Simply
[1] https://www.gov.uk/government/statistics/business-population-estimates-2024/business-population-estimates-for-the-uk-and-regions-2024-statistical-release#:~:text=In%20terms%20of%20employment%20trends,million%2C%20a%20decrease%20of%200.5%25
[2] https://researchbriefings.files.parliament.uk/documents/SN06152/SN06152.pdf
[3] https://www.fca.org.uk/publications/market-studies/joint-fca-cma-sme-banking-market-study
[4] https://www.british-business-bank.co.uk/about/research-and-publications/small-business-finance-markets-report-2025
[5] https://www.gov.uk/government/calls-for-evidence/small-business-access-to-finance/small-business-access-to-finance#fn:2
[6] https://www.allica.bank/press-releases/allica-urges-government-to-supercharge-successful-growth-guarantee-lending-schemes-and-review-prudential-framework-as-new-research-reveals-up-to-6-1745785522366#:~:text=To%20reverse%20the%20decline%20and,the%20US%2C%20Germany%20and%20Spain.
[7] https://www.bankofengland.co.uk/quarterly-bulletin/2024/2024/identifying-barriers-to-productive-investment-and-external-finance-a-survey-of-uk-smes
[8] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5169316
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