UK SME lending reaches post-pandemic high as working capital demand strengthens

Lending to UK small and medium-sized businesses reached its highest level since 2021 in the first quarter of 2026, underlining renewed demand for external finance as companies manage growth, cashflow and cost pressures.

New data from UK Finance showed SME lending rose 16% year-on-year to £5.3bn in Q1 2026. The increase marked the strongest quarterly lending level since the pandemic period and pointed to greater use of finance by businesses after several years of caution.

The rise was especially notable among the smallest businesses. UK Finance said lending to the smallest firms increased 51% year-on-year, taking gross lending to its highest level since the first quarter of 2018, excluding Covid-related lending schemes.

The data suggests that more SMEs are returning to the finance market after a period of high interest rates, weak confidence and limited investment appetite. Demand is likely being supported by working capital requirements, wage costs, inventory needs and renewed expansion plans.

For receivables finance and asset-based lending providers, the figures point to a market where SMEs are again seeking external funding but may still require flexible structures linked to cashflow and trading performance.

The increase also comes as independent lenders and specialist finance providers compete more actively with banks in segments such as invoice finance, asset finance and revenue-based lending.

Stronger SME lending does not remove pressure on smaller companies. Many continue to face late payments, higher operating costs and uncertain demand. But the return of borrowing activity suggests businesses are looking for finance to manage both resilience and growth.