The British Business Bank’s Small Business Finance Markets 2024/25 report, published this week, finds that challenger and specialist banks’ share of gross lending is the highest on record – accounting for 60% and outperforming the UK’s big five banks. The report also finds that business investment by smaller businesses1 continued to be low, a key reason for the lag in UK productivity versus other G7 countries.
Challenger and specialist banks continue to outperform the bigger traditional banks
Of the £62.1bn of gross lending2 to smaller businesses in 2024, £37.3bn was provided by challenger and specialist banks. Their share of gross lending (60%) exceeded that of the big five UK banks for the fourth year in a row, up from 59% in 2023 and the highest on record.
Business investment by smaller businesses remains low
The proportion of smaller businesses accessing finance fell from 50% in Q3 of 2023 to 43% in Q2 of 2024, most likely due to business confidence remaining low despite some recent economic growth. This reflects a challenging economic environment in the UK – 2024 saw growth in the UK at 0.9%, but GDP level was only 3.2% above the pre-pandemic level in 2019 (the second lowest in the G7).
The report also finds that smaller businesses generally invest less than larger businesses relative to their turnover. In 2024, smaller businesses invested an estimated £12.3bn, while larger businesses invested 2.25 times as much (£27.7bn), despite larger businesses contributing slightly less turnover to the economy (48%) than smaller businesses (52%). Reasons for this lower level of investment include a general lack of capital, and investors having less information and certainty about smaller businesses, which leads to higher borrowing costs.
Investment in the UK has also been low historically, with investment growth slower post-global financial crisis. This is a key reason for the country’s productivity lag compared to, for example, Germany and France.
Other Key Findings from the Small Business Finance Market Report:-
- High cost of credit and risk aversion are key factors behind the lack of investment for smaller businesses. The report finds that smaller businesses who believed they have underinvested most commonly cited ‘credit being too expensive’.
- Credit cards and overdrafts remain the most common forms of finance for smaller businesses.
- Smaller businesses are increasingly focused on environmental sustainability as a priority, and are beginning to consider using external finance to fund this.
- Equity investment in 2024 is similar to both 2019 and 2020 levels, with deal numbers down in Q1-Q3 compared to 2023
- Ethnic Minority-led businesses as a whole indicate difficulties in accessing finance, with Black entrepreneurs particularly affected.
You can read the full news release here.
Download a copy of the Small Business Finance Market Report 2025 here.
