Lending from major banks to UK businesses rose to £17.5 billion in 2025, marking the second consecutive year of growth and underlining the increasingly central role of small businesses in driving the country’s AI-driven economic transformation.
New figures from UK Finance show gross lending rose from £16.1 billion in 2024, with momentum steadily increasing throughout the year. £4.6 billion was borrowed in the final quarter alone, extending annual growth to eight consecutive quarters.
The increase was largely driven by smaller businesses, particularly those with an annual turnover of up to £2 million. Lending to this segment increased by more than 25 percent compared to the previous year, reflecting both stronger demand and improved approval rates.
In contrast, medium-sized businesses saw a more modest growth of 4 percent, suggesting that while confidence is returning across the SME landscape, the smallest businesses are currently the most active in seeking funding.
The data suggests a broad-based recovery in business lending across the UK, with activity spread evenly across regions. It also signals a shift in the way companies finance their growth: new loan approvals are outpacing overdraft take-ups, marking a turnaround in 2024.
But despite the increase in lending, overdraft usage remains below pre-pandemic levels, suggesting many businesses still have financial buffers despite ongoing economic uncertainty, rising costs and geopolitical volatility.
David Raw, managing director of commercial finance at UK Finance, said the figures underline the resilience and importance of the SME sector.
“SMEs are a vital part of the UK economy and the banking sector is proud to support them,” he said. “It was pleasing to see gross lending increased for another consecutive year of growth in 2025, driven by stronger demand from the smallest businesses and support from high street lenders.”
But industry experts warn that while the headline numbers are encouraging, they fall far short of what is needed to support the next phase of economic growth, especially as companies compete to adopt artificial intelligence and digital technologies.
Raj Abrol, managing director of data intelligence firm Galytix, said structural barriers within traditional banking models continue to limit access to capital for scaleups and high-growth companies.
“It is encouraging to see lending to SMEs increasing, but these figures are a drop in the ocean compared to the actual amounts needed to revive the global economy,” he said.
“Scale-up companies rely on the support of banks to invest in new technologies, expand into new markets and hire talent, but far too many struggle to secure the support they need due to outdated operating models and risk profiling.”
Abrol argued that artificial intelligence itself could play a role in eliminating these inefficiencies, particularly in streamlining lending processes and improving credit scoring.
“AI agents can change all that, they don’t get tired, they don’t miss details and they don’t forget what they learned in the last quarter,” he said. “You can quickly prepare loan applications for approval and improve access to finance for SMEs.”
The connection between access to capital and AI adoption is becoming increasingly clear as smaller companies face pressure to invest in automation, data analytics and digital infrastructure to remain competitive.
Kenny MacAulay, managing director of accounting platform Acting Office, said many SMEs without sufficient funding risk falling behind in technological change.
“Without access to finance, SMEs will fall dramatically behind in the race to adopt AI, which in turn will hit the economy hard,” he said.
“It’s great to see an increase in lending at a time when so many companies are at a crossroads with technology investments, but these numbers don’t even begin to capture what’s needed for long-term change.”
He added that closer collaboration between government and lenders is essential to increase financing and build an economy capable of supporting widespread AI integration.
The latest figures come at a crucial time for the UK economy as policymakers increasingly focus on productivity, innovation and growth. SMEs, often referred to as the backbone of the economy, are now proving to be key drivers of this transformation.
However, with borrowing costs remaining high and economic uncertainty ongoing, the challenge for lenders and the government is to ensure access to finance keeps pace with ambition.
If this is not the case, there is a risk that the UK’s AI-driven growth story will be marred not by a lack of innovation but by a lack of capital.
