Gross lending to UK small and medium-sized enterprises (SMEs) reached £5.35bn in the second quarter of 2026, the highest quarterly total since the pandemic, according to UK Finance’s latest Business Finance Review. That figure was more than 26% higher than the same period a year earlier and followed a strong first quarter when SME lending rose 16% year‑on‑year to £5.3bn.
Medium-sized businesses sustaining demand
The data underline a clear divergence within the SME universe. While smaller, often younger businesses have become more cautious amid geopolitical strains, rising inflation and higher operating costs, established medium-sized firms have continued to seek external finance to pursue growth plans.
Specialist finance providers and relationship lenders have reported continued enquiries from businesses looking to:
- refinance existing debt to secure better terms or longer maturities;
- release capital backed by property or other assets to fund expansion;
- support strategic acquisitions and site improvements.
Those uses of finance are emblematic of companies that are not simply maintaining operations but actively investing in capacity and capability. The review highlights how lending is not only meeting working capital needs but is being used to fund tangible expansion projects.
Illustrative case and lending dynamics
A hotel refinancing case cited in the review demonstrates the mechanics and rationale behind recent lending flows. An experienced operator sought to refinance borrowing on two owner‑operated hotels while extracting additional capital. One of the properties had received a positive pre‑application response for a redevelopment that could almost double bedroom numbers and upgrade conference and wedding facilities.
"For me, that means looking beyond whether a transaction simply fits a set of criteria. You need to understand the business, the assets supporting the borrowing and, importantly, what the customer is trying to achieve."
The example illustrates how lenders increasingly evaluate transactions on strategic merit — not just on immediate cashflow metrics. For medium-sized firms with established management and tangible assets, refinancing can release headroom for projects that improve long‑term earnings potential.
| Quarter | Gross lending to SMEs | Year‑on‑year change |
|---|---|---|
| Q1 2026 | £5.3bn | +16% |
| Q2 2026 | £5.35bn | +26% (vs Q2 2025) |
Implications for lenders and the wider economy
For lenders, the pattern raises questions about portfolio composition and risk appetite. Medium-sized firms typically offer larger ticket sizes and more complex credit profiles than micro‑businesses, often requiring bespoke facilities, asset valuation and sector expertise. That dynamic favours specialist finance houses, challenger banks and relationship teams within larger banks able to underwrite longer term projects.
From an economic perspective, resilient lending to medium-sized businesses may support employment and productivity if funds are deployed into capacity expansion, capital expenditure and acquisitions that create scale. However, the picture is not uniformly positive: the cautious stance of many smaller businesses highlights ongoing fragility, and elevated costs and geopolitical uncertainty continue to constrain some investment decisions.
Policymakers and market participants will watch whether the recent momentum in lending is sustained through periods of macroeconomic pressure. Continued flows into refinancing and development projects suggest that, at least for a segment of the SME sector, finance is enabling strategic adaptation rather than merely plugging short‑term gaps.
Ultimately, the latest figures provide a reminder that headline lending totals mask a range of behaviours inside the SME sector: while some businesses retrench, others are using credit to change their growth trajectory. That divergence will shape both bank balance sheets and the real economy in the months ahead.
