Small Business Lending in the UK: A Crucial Cornerstone for Economic Growth

Strategic Insights -

The UK's economy heavily relies on small and medium-sized enterprises (SMEs) for growth and job creation, but accessing finance for these businesses remains a significant challenge. The British Business Bank's (BBB) growth guarantee scheme has provided vital support, guaranteeing PS75 million a month in SME loans, equivalent to PS900 million a year to about 4,690 firms. Despite this, many industry experts argue that the scheme should be doubled in size and expanded to support more lending, as it is currently three to four times smaller than equivalent schemes internationally.

Key Takeaways:

  • The British Business Bank's growth guarantee scheme has guaranteed PS75 million a month in SME loans, equivalent to PS900 million a year to about 4,690 firms.
  • The scheme is currently three to four times smaller than equivalent schemes internationally, leaving many businesses underserved.
  • Industry expert Richard Davies, chief executive of Allica Bank, argues for the scheme to be doubled in size to support more lending and to accommodate larger loan sizes, such as up to PS5 million.
  • The scheme's design already provides insufficient capacity, and there is significant demand to see the parameters widened to support scaling SMEs.
  • Businesses can borrow a maximum of PS2 million, with the loans 70% guaranteed, and the bank is expected to pass any savings from this support onto the price of the loan for the SME.
  • The government is aware of the need to address the issue of limited competitive downward pressure on loan prices, with a consultation launched in March expected to yield a response this autumn.
  • HSBC's head of business banking, Tom Wood, notes that the bank's lending to SMEs is growing year-on-year, but that the appetite for SMEs to borrow remains high.

Statistics:

  • The proportion of small businesses using external finance fell from 50% in September 2023 to 43% in the same period in 2024, according to the British Business Bank.
  • The growth guarantee scheme has provided support to about 4,690 firms, with a total value of PS900 million a year.
  • SME lending by main high street banks increased by 8% in the second quarter of 2025 to PS4.24 billion, compared with the same period last year.
  • HSBC has hundreds of thousands of SME customers, with Tom Wood noting that the bank's lending to SMEs is growing year-on-year.

Sources:

  • The Times article "Small firms' access to finance 'shows no signs of improving'"
  • British Business Bank data
  • The Times article "UK Finance: SME lending grows, but caution remains"
  • The Times article "HSBC launches free digital banking account for small businesses"