Commercial growth now runs nearly seven times faster
Paragon Bank's SME Lending division has passed £90 million in lending through the British Business Bank's Growth Guarantee Scheme (GGS), with the specialist lender's commercial lending growing faster than its mortgage business.
In the nine months to June 30, 2026, Paragon Banking Group's commercial lending new business rose 8.2% year-on-year to £940 million, against a 1.2% rise in mortgage advances to £1.12 billion.
The group said buy-to-let demand remained sensitive to interest rate movements, and it added a team focused on agricultural clients within its SME lending division during the quarter.
Through the GGS, Paragon has funded more than 300 SMEs in sectors including manufacturing, transport, construction, engineering and agriculture.
Its lending under the scheme has risen steadily since it became an accredited lender, and the British Business Bank has granted it additional allocations in recognition of demand and its deployment of the funds.
Borrowers include an aircraft manufacturer in the North West, which took a £100,000 GGS-backed loan to support growth opportunities through staff training and a new site.
A York community centre for school leavers and adults with additional needs (SEN) received £67,000 for a wastewater treatment system, and a North East coffee shop business used £25,000 of GGS-backed funding to refit its fourth shop.
Specialist banks lead the market
Paragon is one of several specialist lenders competing for SME borrowers. Challenger and specialist banks accounted for 60% of gross SME bank lending in 2025, up from 39% in 2012, according to the British Business Bank, while total gross SME bank lending rose 9% to £68 billion.
Shawbrook, another specialist bank, grew its SME loan book by around £400 million in the first half of 2026, helped by its acquisition of the ThinCats portfolio. Its total loan book, including originate-to-distribute assets, reached £20.1 billion.
More capacity on the way
Then-Chancellor Rachel Reeves announced a £6.5 billion uplift to the GGS in July, which the British Business Bank said would unlock further lending over the next four years and help an estimated 33,000 businesses. Some facility terms will extend from six to 10 years, and turnover eligibility will rise from £45 million to £54 million.
The scheme, which carries a 70% government guarantee, has delivered £3.7 billion to UK businesses via 70 accredited partners, according to the British Business Bank. Around 70% of facilities have gone to businesses outside London and the South East.
Paragon is pressing for further support. Phil Hughes, deputy managing director of SME Lending at Paragon Bank, said the lender was "urging the British Business Bank to build further on schemes such as the GGS".
"Continued support will be vital if we are to drive productivity and help Government deliver on its ambitions to achieve growth in every postcode," he said.
"Reaching £90 million of lending through the GGS demonstrates the value of the scheme and the important role it is playing in supporting Britain's small businesses' resilience and growth," Hughes added.
He described SMEs as "the engine of the UK economy", noting that many still face barriers when seeking finance.
"The Growth Guarantee Scheme helps bridge that gap, giving businesses access to the funding they need while allowing lenders such as Paragon to support a broader range of viable firms," he said.
Reinald de Monchy, chief banking officer at the British Business Bank, said the scheme "continues to play an important role in improving access to finance for smaller businesses across the UK".
What brokers are seeing
UK Finance data showed gross SME lending from the main high street banks reached a post-pandemic high of £5.35 billion in the second quarter of 2026, with real estate firms accounting for much of the growth.
In real terms, however, lending by those banks in the first half remained a third below its 2019 average.
Commercial brokers responding to Atom bank's SME Pulse survey said the smallest borrowers were finding it harder than ever to complete deals. Bank of England figures show SME loans falling from 12% of GDP in 2011 to 6.5% in 2026.
Intermediaries handle a substantial volume of this business. National Association of Commercial Finance Brokers members arranged £33 billion of SME lending in 2025, up 25% on the year, and the trade body estimates the total broker-led SME market at around £50 billion a year.
The scheme's eligibility rules are relevant to brokers with business-owner clients. GGS borrowers must generally earn more than 50% of their income from trading activity, according to the British Business Bank, and principal private residences cannot be taken as security under the scheme.
Paragon SME Lending is part of FTSE 250-listed Paragon Banking Group and serves more than 17,000 small and medium-sized businesses across the UK.
