That’s according to a report Monday (May 25) from the Financial Times (FT), which noted that this trend is being driven by weak economic growth and stricter regulation on lenders, making credit harder to access for smaller businesses in particular.
Bank lending to nonfinancial companies dropped to 59% of U.K. GDP in the third quarter of 2025, a level last seen in 1998, the report said, citing research from Boston Consulting Group (BCG). Bank lending to businesses peaked in 2008 at around 90% of GDP.
Small and medium-sized businesses (SMBs) were disproportionately impacted, the report added, with loans to these firms down by nearly half in the last 15 years. Banks have moved away from SMB lending, which can carry more risk and offer lower profits due to the work needed to perform due diligence on smaller businesses, the FT said.
Raoul Ruparel, BCG director for growth, said that on the surface the U.K.’s financial sector still appeared strong but had ceased doling out capital effectively.
Banks have “shifted from supporting productivity growth to dragging on it,” he said. “That is a structural problem for the U.K. economy, not a sector issue.”
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FT added that this decline in lending is happening as banks complain that loan demand has weakened along with economic growth, while survey data shows that small businesses are less likely to seek credit out of fear of rejection. This can foster a self-reinforcing cycle where SMBs cease applying for credit while banks reduce lending to due lack of demand, the report said.
Meanwhile, recent research by PYMNTS Intelligence finds another roadblock in lending to small businesses: these companies are “no longer moving in one economy.”
“A contractor in Texas, a healthcare practice in Arizona, and a retailer in the Northeast may all technically qualify as small businesses while facing entirely different economic conditions, labor markets and consumer demand environments,” PYMNTS wrote.
Research from PYMNTS Intelligence finds that growth for restaurants and brick-and-mortar retail businesses is slowing or contracting, while healthcare providers, contractors, fitness businesses and professional services companies are all enjoying expanding growth.
“The result is a fragmented SMB economy with sharply different operating models, risk profiles and financial infrastructure needs,” PYMNTS added.
“To stay ahead of this shift, financial services firms and FinTech providers are increasingly rethinking their underwriting, liquidity management, and embedded financial products for the next generation of SMB clients.”
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