SME lending by high street lenders increased again in Q3 to £4.2bn, which is above the average recorded in 2023 and 2024, UK Finance has revealed.

The trade association’s latest Business Finance Review found that despite this growth, lending has been easing since the start of the year.

Lending in the third quarter increased by 6.4% year-on-year, which is down from 8.3% in Q2. This is the slowest since the recovery in gross lending began at the start of 2024.

UK Finance stated that this easing in lending was expected and was signalled in its last Business Finance Review.

However, it has also seen a slowdown in new loan approvals, particularly for medium sized companies.

UK Finance also found that growth in new approvals also looked to be levelling off, with the value of all new finance approvals, including loans and overdrafts, was flat in Q3 year-on-year. This is the weakest growth for around two years.

However, the number of overall approvals increased by just over 10% year-on-year, but UK Finance stated that this has "significantly come off the boil" compared to the second half of 2024.

Sales director at Asset Advantage, Gary Thompson, said that the latest SME data is "really encouraging" and mirrors what the firm is seeing on the ground.

He concluded: "Speaking with commercial brokers, it is clear that these enterprises are actively pursuing funding that helps them grow – whether that’s through asset finance or expansion-based lending. In fact, our latest data points to asset finance and business acquisitions dominating funding demands in the coming 12 months. As we head into the New Year, this is hugely positive given the important role SMEs play as the engine room of the UK economy.

"Lenders and funders have a critical role to play in facilitating this by making sure they are responsive to the needs of these businesses. Rather than restrictive appetites to risk, we must be open-minded, pragmatic and willing to look outside the box to assist SMEs, support transactions and give brokers the tools they need."

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