Where small businesses are finding finance in 2026

Traditional bank lending has dropped to a 30-year low. But did you know that 68% of lending to small businesses now comes from alternative lenders, like Funding Circle?

For 15 years, we’ve backed the small businesses that keep the UK economy moving, extending £17 billion of credit to over 125,000 UK businesses.

Here we look at what the changing lending landscape means for your small business, and how alternative lenders are bridging the finance gap. 

What’s changed with traditional bank lending?

New research from Boston Consulting Group (25 May 2026) reveals that lending by traditional banks has fallen significantly – and it’s disproportionately affecting small- and medium-sized businesses. 

Banks report a fall in demand for loans, citing weak economic growth. Meanwhile, banks cite the high cost and complexity of assessing individual SMEs – relative to the size of each loan – as making this segment less commercially attractive to them.

At the same time, the survey data shows that small businesses are less likely to apply for credit for fear of rejection. This becomes self-reinforcing: less business owners apply for credit, and so demand – and in turn lending – falls.

The bigger picture for small business lending

While traditional bank lending is down, that is not the full picture. Over the past ten years, a diverse ecosystem of alternative lenders has stepped up to fill the gap.

According to the British Business Bank’s Small Business Finance Markets 2025/26 report, gross SME bank lending actually increased by 9% to £68bn in 2025, the second highest level since 2012.

This increase was down to the emergence of challenger and specialist banks, who accounted for 60% of gross SME bank lending in 2025, up from 39% in 2012.

Additionally, the growth of non-bank lenders over the past decade means more than two thirds (68%) of overall SME lending in 2025 came from outside the main high street banks – from either challenger and specialist banks, or non-bank lenders, such as Funding Circle.

New lenders are stepping up 

The data is clear: the traditional bank is no longer the default option. The lending landscape is changing. 

The growth of new alternative lenders, often specifically aimed at small businesses, are helping bridge the funding gap left by traditional banks. 

No longer do the ‘big five’ high street banks dominate the market. Instead, more lenders competing for small business customers gives business owners a wider choice of finance products, faster decisions and flexible lending criteria. 

By combining advanced data analytics with seamless technology, platforms like Funding Circle are providing the agile capital that businesses need to navigate a dynamic economic environment.

In short, you’re now more likely to find a finance option to suit your business’s unique needs.

How Funding Circle are backing small business

At Funding Circle, our mission has always been simple: to get small businesses the funding they need to win. We know that, to truly thrive, small businesses need access to fast, flexible, and reliable capital.

While the banks are pulling back, we lent £2.5 billion to UK small businesses in 2025 alone – and we're continuing to grow to support even more small businesses each year.  

Our 2025 Economic Impact Report highlights how Funding Circle’s alternative SME financing is unlocking growth across the UK. Not only are we driving growth in lending, as the UK’s leading SME finance platform, we are also bridging the gap in historically underserved local economies or regions where traditional lenders have pulled back.

In underserved areas we have become a critical source of credit – providing at least 25% of all SME lending in constituencies such as Warrington North and Bolsover.

Our specialist technology, developed over 15 years, looks at the real-world movement of your business – so we can help you get where you’re going. Faster. 

Unlocking your business’s potential

With a persistent SME lending gap still constraining thousands of viable businesses, Funding Circle remains resolutely focused on unlocking the potential of small businesses to power the UK’s growth for years to come.

At Funding Circle we offer business loans, lines of credit and business credit cards. We also work with a panel of trusted lenders who offer an array of products, including asset finance, merchant cash advance and invoice financing.

If one of our products isn’t the best fit for your business, your dedicated Account Manager will help you navigate the available options to find a deal that works for you. 

Apply online in minutes and get finance that works for your business.

29/06/26: This information is correct at the time of writing and is subject to change. While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.