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UK Challenger Banks Overtake High Street Lenders for SME Loans

UK Challenger Banks Overtake High Street Lenders for SME Loans

(3 March 2023 – United Kingdom) Challenger and specialist banks have surpassed high street banks for smaller business lending, with new data showing they accounted for 55 percent of the SME market in 2022.

According to the state-owned British Business Bank, challenger and specialist banks provided a record £35.5bn compared to the £29.6bn deployed by traditional UK banks.

The total figure represents a 12.8 percent increase from 2021. However, net lending fell by £8.5 billion, in large part reflecting repayment of Covid loans.

The report reveals the smaller business asset finance market also reached a record level in 2022, with an increase in new business of 11 percent in 2022 to £22.1 billion. This was driven in part by some easing of supply chain shortages and by rising asset prices.

The data show a considerable drop in the demand for external finance - in Q3 2022, only 3 percent of smaller businesses were using external finance, compared to 44 percent the year prior. Gross lending still grew as firms using finance sought larger loans to support their business due to inflationary pressures.

The UK’s big five banks – Barclays, Lloyds Banking Group, HSBC, NatWest Group and Santander – have traditionally dominated smaller business lending.

But well-established challengers such as TSB and Metro Bank and specialists like Shawbrook Bank and Paragon Bank have taken hold of a growing share of business customers.

“Today’s report finds strong growth from challenger and specialist banks, as well as asset finance provision, as businesses seek alternative finance options,” said British Business Bank CEO, Louis Taylor.

"There are promising signs of growth in the net-zero deal sector as equity finance markets respond to growing demand for investment in green innovation," he added

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