Lending to UK SMEs
– Annual Report 2023
Analysis of SME lending debentures registered at Companies House in 2023. A year of property-led slowdown, with total activity falling 13% from 2022 levels before rebounding strongly in 2024.
Summary
2023 saw a significant slowdown in SME lending activity, with total debentures falling from 142,038 in 2022 to 123,655 – a 13% decline. The contraction was primarily driven by the property sector, which fell 18% as rising interest rates and economic uncertainty suppressed transaction volumes.
Non-property SME lending was more resilient, declining 6% from 61,847 to 58,072. Challenger banks held steady (9,365 vs 9,707, −4%), while High Street banks fell 9%. Average SME debts remained broadly flat at £63.4k, with a marginal increase in the asset finance component.
The independent lending sector showed pockets of strength: SME loan providers nearly doubled their activity from 411 to 770 debentures, and government-supported lending rose 5%. These trends set the stage for the strong rebound seen in 2024.
Key Insights
- Property-led decline — Property specialists fell 18% (80,191 to 65,583), accounting for the majority of the overall market contraction.
- Challenger resilience — Challenger banks saw only a 4% dip, with Shawbrook (1,941) and Aldermore (1,912) maintaining strong volumes.
- Loan provider growth — SME Loan providers almost doubled from 411 to 770 debentures (+87%), led by Nucleus Commercial Finance reaching 258.
- R&D finance expanded — R&D Finance grew 79% (126 to 225), though this would reverse in 2024 following HMRC process changes.
- Stable SME debts — Average disclosed debts rose marginally from £62.9k to £63.4k, with external debt dipping slightly from £51.9k to £51.3k while asset finance grew.
Contributor Commentary
Mark Dowding
Chief Investment Officer & Senior Bank Executive
Contributor at The Financial Times
SMEs are the lifeblood of a thriving economy. In the UK, many SMEs have struggled to grow materially due to the cost, or lack of availability, of credit. In recent years, there has been growing evidence of traditional banks turning their back on the SME sector. Banks have become more risk-averse in the wake of regulatory change since the Financial Crisis of 2008. Moreover, in a capital-constrained world, banks have increasingly determined that the revenues earned from lending to this sector don't compensate them adequately for the costs incurred in making these loans, which may often be for relatively modest sums. This has accelerated the retrenchment of traditional banks from this sector. Alternative lenders have taken their place, though the cost of capital charged means that there is a high hurdle to invest for growth, contributing to a stagnation of lending.
Intelligent lending, making use of AI tools, may prospectively help to drive down the costs associated with making and processing SME loans, by driving efficiency into a space currently reliant on multiple manual processes. As cost savings are passed on, such an approach may serve to benefit both borrowers and lenders alike. Additionally, the protracted timelines attached to the heavily bureaucratic process could be dramatically shortened. In these ways, if it becomes more attractive to borrow, then this may also lead to an uptick in demand for SME loans in total.
This is something which could stand to benefit the economy; an economic good which could benefit all. SMEs are the lifeblood of a thriving economy. Let's hope we can help get the blood pumping and help bring life to a listless economy.
Market Overview – 2023 vs 2022
Key category-level comparisons drawn from the 2024 report's year-over-year data.
| Category | 2022 | 2023 | Var. | % |
|---|---|---|---|---|
| High Street Banks | 27,504 | 25,069 | −2,435 | −9% |
| Other Banks | 16,429 | 14,693 | −1,736 | −11% |
| Challengers | 9,707 | 9,365 | −342 | −4% |
| Banks (Subtotal) | 53,640 | 49,127 | −4,513 | −8% |
| ABL + Invoice Finance | 5,245 | 5,567 | +322 | +6% |
| SME Loan Providers | 411 | 770 | +359 | +87% |
| Asset Finance | 943 | 1,006 | +63 | +7% |
| R&D Finance | 126 | 225 | +99 | +79% |
| Government Supported | 626 | 658 | +32 | +5% |
| Other SME (Subtotal) | 8,207 | 8,945 | +738 | +9% |
| Property Specialists | 80,191 | 65,583 | −14,608 | −18% |
| Grand Total | 142,038 | 123,655 | −18,383 | −13% |
Access the Full Report
Want the complete lender-level analysis, regional breakdowns, and full data tables? Get in touch with the Spark team.
Contact the Spark TeamMethodology
This analysis uses AI-driven classification to identify and categorise charges registered at Companies House. Around 9,000 debenture holders have been matched to approximately 800 lenders. Charge types covered include property finance, invoice finance, trade finance, asset finance, and loans.
In the general charges analysis, company group structures are not consolidated — each entity is treated independently. Multiple charges registered in the same period by the same company are counted individually and are not deduplicated. This differs from the invoice finance methodology, which applies group consolidation and deduplication.
Analysis covers approximately 3.9 million SMEs, excluding companies with over 1,000 employees or over £50m in debt or net assets.
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