Key Takeaways from Business Finance Review Q2 2025
UK Finance's Business Finance Review Q2 2025, published in September, tracks high street bank lending to SMEs. Gross lending reached £4.24 billion, marking six consecutive quarters of year-on-year growth at +8% – down from Q1's 14% but still positive. Small firms under £2m turnover led with +28% YoY new lending, while medium SMEs saw softer loan approvals amid rising costs like National Insurance contributions and trade uncertainties.
Net lending improved slightly to -£1.1 billion from Q1's -£1.2 billion. Overdraft utilisation held steady below 50%, and deposits declined at the slowest rate since Q2 2022 (-2.4% YoY). Repayments totalled £5.4 billion, with delinquency rates stable, reflecting cautious investment rather than distress.
Sector Performance and Market Shifts
Lending growth broadened across sectors after Q1 concentration:
- Hospitality and construction rebounded strongly, echoing broker surveys on high demand.
- Manufacturing and retail held steady despite 0.3% GDP growth.
- Health and social care contracted following Q1 gains.
Challenges persist from US tariffs, fragile consumer spending, and Autumn Budget impacts. Small firm loan approvals rose +14% in number, but overdraft approvals hit a one-year low as pre-budget surges faded.
Key metrics
- Gross lending in Q2 2025 was £4.24bn, representing 8% year‑on‑year growth. Small firms saw particularly strong momentum, with new lending up 28% year‑on‑year.
- The number of loan approvals rose by 7% compared with the same quarter last year. Within this, small firms recorded a 14% increase in new loan approvals.
- New overdraft approvals fell back to their lowest level in a year, reflecting greater caution from both lenders and SMEs in the wake of cost pressures such as National Insurance contribution increases.
- Business deposits were down 2.4% year‑on‑year, but this was the slowest rate of decline since 2022. Hospitality businesses were among the hardest hit as they continued to draw down cash buffers to manage trading conditions.
What This Means for Your Business
Positive lending trends signal opportunity for viable growth plans, even as macro pressures mount. Challenger banks now hold over 60% market share, expanding options beyond high street lenders.
At Business Score, we turn these insights into action. We recently secured £120,000 for a property investment client via Paragon Banking Group, partnering with trusted intermediaries. Our expertise spans secured loans for assets/expansions, unsecured funding for cashflow, and acquisition finance up to £500k+.
- Tailored solutions for hospitality, construction, manufacturing, and beyond.
- Fast access to top lenders, sector-agnostic and flexible.
- Full support from application to completion.
Secure Your Funding Edge Today
Don't let headwinds stall your plans. Business Score connects you to the right finance, fast.
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Explore the data: UK Finance Report Hub | Q2 2025 PDF
