Are High Street Banks Pulling Back From SME Lending?

Rory Dunn
6 days ago
3 min read

Small businesses are increasingly turning to alternative lenders for support, as concerns grow that the UK’s biggest banks are retreating from SME finance.

A new quarterly survey from iwoca found that 71% of SME finance brokers now believe high street banks are pulling back from lending to small businesses. This reflects a significant loss of appetite for SME finance among the mainstream lenders.

In fact, a recent report from the British Business Bank (BBB) revealed that challenger banks and fintechs now account for around 60% of gross SME lending. For four consecutive years, specialist lenders have outperformed the UK’s “Big Five” banks – HSBC, Barclays, Lloyds, NatWest, and Santander.

SMEs shifting towards alternative lenders

According to iwoca’s survey, 61% of brokers submitted the majority of loan applications to alternative lenders in the last month alone.

Why? The data shows that speed of decision-making is a major factor, with 73% of brokers saying that turnaround time is driving SMEs away from the high street.

Where banks may still play a role is in smaller, short-term loans. But when it comes to significant investment decisions, 65% of brokers now direct clients towards non-bank lenders for applications over £100,000.

This change underlines a growing preference for flexible, technology-led finance solutions, a space where specialist providers like Approved Finance Group can really make a difference.

Access to finance in 2025

Access to finance has become one of the biggest challenges facing SMEs this year.

Higher interest rates, cautious banks, and an increase in SME loan rejections mean that more businesses are paying down debt rather than investing in growth.

According to Allica Bank, rejection rates have risen to 40%, up from just 5–10% three decades ago.

In response, the UK government has rolled out its Small Business Plan, pledging:

69,000 additional Start Up Loans
A £3bn boost to the ENABLE programme, which supports lenders that provide finance to SMEs
New measures to tackle late payments

What funding options are available outside the banks?

Since 2016, the Bank Referral Scheme has required banks that reject loan applications to suggest alternative finance options. But the reality is, many SMEs simply give up after being turned down by a bank.

This reluctance can be costly, because there are now more alternative business finance options than ever before.

At Approved Finance Group, we specialise in helping businesses access the right funding solution, fast. Whether you’ve been turned down by a bank or simply want a quicker, more flexible option, we can support you with:

Business Loans – unsecured and secured loans tailored to your needs
Invoice Finance – release cash tied up in unpaid invoices
Asset Finance – fund vehicles, machinery, and equipment without heavy upfront costs
Property Finance – including development and bridging loans
Commercial Mortgages – refinance or purchase property with competitive rates

We work with a wide panel of lenders, from challenger banks to specialist finance providers, giving SMEs access to funding solutions that aren’t available on the high street.

Final thoughts...

The evidence is clear: traditional banks are lending less to SMEs. But that doesn’t mean businesses are out of options. With more flexible products, faster decisions, and specialist expertise, alternative lenders are stepping in to fill the gap.

If your business is looking for finance in 2025, don’t let a rejection from a high street bank hold you back. Explore the full range of funding solutions with Approved Finance Group, and find a partner that’s committed to helping your business grow.

Want to dicuss your options with a member of our team today? If so, then don't hesitate to get in contact on 01908 429888 or click here to enquire today!