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SME lending rises to £17.5bn as small businesses drive AI-led growth across the UK

March 20, 2026

Santander has tightened its hybrid working policy, instructing its UK office-based staff to work the equivalent of three days a week at its offices.

High street bank lending to UK businesses climbed to £17.5 billion in 2025, marking a second consecutive year of growth and underlining the increasingly central role of small firms in driving the country’s AI-led economic transformation.

New figures from UK Finance show gross lending rose from £16.1 billion in 2024, with momentum building steadily throughout the year. In the final quarter alone, £4.6 billion was lent, extending the run of year-on-year growth to eight successive quarters.

The increase was driven overwhelmingly by smaller businesses, particularly those with annual turnover of up to £2 million. Lending to this segment rose by more than 25 per cent compared with the previous year, reflecting both stronger demand and improving approval rates.

By contrast, medium-sized firms recorded more modest growth of 4 per cent, suggesting that while confidence is returning across the SME landscape, the smallest businesses are currently the most active in seeking finance.

The data points to a broad-based recovery in business lending across the UK, with activity spread evenly across regions. It also signals a shift in how companies are financing growth, with new loan approvals outpacing overdraft usage, reversing a trend seen in 2024.

However, despite the uptick in lending, utilisation of overdraft facilities remains below pre-pandemic levels, indicating that many businesses are still maintaining financial buffers amid ongoing economic uncertainty, rising costs and geopolitical volatility.

David Raw, Managing Director of Commercial Finance at UK Finance, said the figures highlighted the resilience and importance of the SME sector.

“SMEs are a vitally important part of the UK economy and the banking sector is proud to support them,” he said. “It was good to see gross lending increasing for another consecutive year of growth in 2025, driven by stronger demand from the smallest businesses and support from high street lenders.”

Yet industry experts have warned that while the headline figures are encouraging, they fall well short of what is required to support the next phase of economic growth, particularly as businesses race to adopt artificial intelligence and digital technologies.

Raj Abrol, chief executive of data intelligence firm Galytix, said that structural barriers within traditional banking models continue to limit access to capital for scale-ups and high-growth firms.

“It’s encouraging to see SME lending on the rise, but these figures are a drop in the ocean compared to the actual amounts needed to reboot the global economy,” he said.

“Scale-up companies rely on support from banks to invest in new technology, expand into new markets and hire talent, yet 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 addressing these inefficiencies, particularly in streamlining lending processes and improving credit assessments.

“AI agents can change all this, they do not get tired, do not miss details and do not forget what they learned last quarter,” he said. “They can rapidly prepare loan applications for approval and improve access to finance for SMEs.”

The link between access to capital and AI adoption is becoming increasingly clear, with smaller firms under pressure to invest in automation, data analytics and digital infrastructure to remain competitive.

Kenny MacAulay, chief executive of accounting platform Acting Office, said that without sufficient funding, many SMEs risk being left behind in the technological shift.

“Without access to finance, SMEs will fall drastically behind in the race for AI adoption, which in turn will hit the economy hard,” he said.

“It’s great to see an uptick in lending at a time when so many organisations are at a crossroads with tech investment, but these numbers don’t even begin to cover what is needed for long-term change.”

He added that closer collaboration between government and lenders would be essential to scale up funding and build an economy capable of supporting widespread AI integration.

The latest figures come at a pivotal moment for the UK economy, with policymakers increasingly focused on productivity, innovation and growth. SMEs, often described as the backbone of the economy, are now emerging as a critical engine of that transformation.

However, with borrowing costs still elevated and economic uncertainty lingering, the challenge for both lenders and government will be ensuring that access to finance keeps pace with ambition.

If it does not, the risk is that the UK’s AI-driven growth story could be constrained not by a lack of innovation, but by a lack of capital.