Bank of England: SME credit availability tightens as borrowing demand softens

UK lenders reported a slight fall in credit availability for small and medium-sized businesses in the second quarter, according to the Bank of England’s latest Credit Conditions Survey.

The survey found that overall credit availability to the corporate sector was unchanged in Q2, but the picture was weaker for smaller firms. Lenders reported that credit availability decreased slightly for small and medium-sized businesses, while remaining unchanged for large companies.

The finding is relevant because SMEs are already facing pressure from late payments, higher employment costs and uneven demand. A softer lending environment can make it harder for smaller companies to fund working capital, manage seasonal cash flow or invest in growth.

The survey also showed that overall demand for lending from small businesses fell over the past three months, while demand from medium-sized private non-financial companies also weakened. That suggests the issue is not only bank appetite, but borrower confidence.

For invoice finance, asset-based lending and alternative finance providers, the data points to a familiar gap. Smaller businesses may still need liquidity, but many are cautious about taking on traditional debt. That can make receivables-backed and asset-based facilities more relevant where funding is linked directly to trading activity.

The Bank of England survey also showed that small-business demand for unsecured lending remained positive in some categories, while secured lending demand was weaker. That may indicate that firms are using shorter-term or more flexible funding routes rather than committing to larger secured borrowing.

The Q2 data does not suggest a severe credit shock. But it does show that SME finance conditions remain fragile, with credit availability still uneven between large corporates and smaller businesses.

For lenders, the challenge is to support businesses that need working capital without increasing exposure to weaker borrowers. For SMEs, the challenge is finding finance that matches cash conversion cycles rather than adding another fixed repayment burden.