Weak economic growth and tighter regulations on lenders are to blame for the largest drop in bank lending to UK businesses in 30 years, according to new data.
A study conducted by Boston Consulting Group showed 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.
Back in 2008, before the financial crash, bank loans were roughly 90 per cent of GDP.
Small and Medium-sized Enterprises (SMEs) have been disproportionately affected by this dip in lending.
How have SMEs been affected by a fall in loans?
SMEs make up 99.9 per cent of all UK businesses and Bank of England data shows that SME-specific lending has almost halved over the last 15 years. It now sits at a 30-year low of 6.5 per cent of GDP in 2026.
Traditional banks are favouring SMEs that have physical capital they can repossess if the SME defaults on a loan, placing knowledge-based SMEs at a disadvantage.
Insolvency rates are also rising. Without the safety net of bank overdrafts or bridge loans, a late payment from a major client can now escalate into forced insolvency.
Why don’t banks want to loan to Small and Medium-sized Enterprises?
Banks have moved away from broader SME lending, which carries higher risks and offers lower profits due to the work that is needed to perform due diligence on smaller businesses.
Instead, the banks have turned to lending more within specific sectors, such as property, with real estate SMEs now receiving 51 per cent of all loans.
Banks have also reported that the demand for loans has gone down due to weak economic growth. However, SMEs say they are less likely to apply for a loan because of a fear of rejection.
It is worth remembering that bank loans are not the only way to finance an SME and seeking professional financial support is vital for understanding your options.
