Bank lending to non-financial companies at lowest level since 1998 as SME credit shrinks
Bank lending to British non-financial businesses has fallen to its lowest level since 1998, according to new research from Boston Consulting Group (BCG), raising concerns about the allocation of capital in the UK economy.
BCG data show that bank lending to non-financial companies stood at 59% of UK GDP in the third quarter of 2025, down from a peak of approximately 90% at the time of the 2008 financial crisis.
The decline has been particularly pronounced among small and medium-sized enterprises. Bank of England figures show that SME loans have fallen from 12% of GDP in 2011 to 6.5% in 2026 — a reduction of roughly half over 15 years.
"That is a structural problem for the UK economy, not a sector issue," said Raoul Ruparel (pictured right), director for growth at Boston Consulting Group. The banking sector, he added, "has shifted from supporting productivity growth to dragging on it."
The remaining lending to businesses has increasingly been directed towards property. Real estate SMEs now account for 51% of all loans to small businesses, up from 39% a decade ago.
Ruparel flagged this trend as a further drag on productive investment: "It doesn't feel like the most productive use of lending... often, this is not financing the building but refinancing agreements on existing buildings."
Private credit, which expanded significantly following the 2008 crisis as an alternative to bank debt, has not compensated for the shortfall. BCG calculates that total credit now sits 17% below its historical trend.
Banks have attributed part of the decline to weak demand. A senior figure at a UK bank said: "All the banks are issuing bold lending targets, but if there is no demand as no one wants to borrow, there isn't a lot we can do."
Survey data indicate that SMEs have become less likely to seek credit, partly out of concern that applications will be declined — a dynamic that may reinforce itself over time as both lenders and borrowers retreat from the market.
Since the financial crisis, banks have also adopted more conservative lending criteria, favouring loans secured against property over financing for early-stage businesses. Capital requirements have also been a factor. In November, Michael Roberts, head of HSBC's corporate and institutional bank, told the House of Lords financial services regulation committee that capital requirements were five times higher when lending directly to small and medium-sized companies than when providing funding to private credit groups to finance loans to the same businesses.
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