UK challenger and specialist bank lending hits record high
UK challenger and specialist bank lending to smaller businesses hit a record high in 2024, outperforming the country’s big five banks for the fourth consecutive year.
The British Business Bank’s small business finance markets 2024/25 report found that £62.1bn was lent to smaller firms in 2024, of which £37.3bn – around 60 per cent – was provided by challenger and specialist banks.
However, the report also found that the proportion of smaller businesses using finance declined from 50 per cent in the third quarter of 2023 to 43 per cent in the second quarter of 2024, which the analysis said reflects a challenging economic environment.
Read more: BBB marks 10-year anniversary with £32bn of funding delivered
High cost of credit and risk aversion were cited as key factors for reluctance to access finance and lack of investment by smaller businesses.
77 per cent of respondents agreed that they would accept a slower growth rate rather than borrowing to grow, with only seven per cent disagreeing, suggesting a strong aversion to taking on debt for investment.
“It is clear that conditions are not easy for smaller businesses, with some domestic uncertainty meaning many were less willing to invest with confidence in 2024,” said chief executive Louis Taylor (pictured).
“If we are to achieve the growth we all want in the UK economy, it is important that we continue to make the case for business investment which can help drive economic growth, lift wages and improve living standards.
“The diversity of supply of finance, in terms of both product and provider, is an important factor in meeting the diverse needs of the UK’s highly varied smaller business community. The increasing role for challenger banks in 2024 is an encouraging sign, as is the continued rise of asset finance.
Read more: BBB launches £150m funding programme for social impact lenders
“The findings from this report further emphasise the need to ensure smaller businesses across the UK’s nations and regions have better access to the finance they need to invest. We will continue to support UK economic growth by helping them find the capital they need to start up, scale up and stay in the country as they realise their full potential.”
Credit card financing remained the most popular form of finance for smaller businesses last year, although usage declined slightly from 15 per cent of respondents in the first quarter to 13 per cent in the third quarter.
Bank overdrafts were the second most popular form of finance for much of this period, also experiencing a decline in usage throughout 2024, falling from 14 per cent in the first quarter to nine per cent in the third quarter.
These changes over the course of the year indicate a gradual shift away from short-term, higher-interest products, the British Business Bank said.
