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Challenger bank SME lending hit £35.5bn in 2022, overtaking incumbents

Challengers controlled 55% of the UK SME lending market last year.

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Starling Bank/Lensi Photography.

High street and traditional banks lost their domination of the UK SME lending market last year, with challengers and specialist rivals lending £35.5bn, or the equivalent of 55 per cent of the market.

The milestone figures, released by the British Business Bank today, mark the third time alternative lenders have accounted for the majority of the UK SME lending market, after briefly overtaking incumbents in 2018 and 2021 with 51 per cent share.

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

As a whole, gross bank lending to SMEs grew by 12.8 per cent to £65.1bn, however, net lending fell by £8.5bn due to businesses repaying their Covid loans.

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The volume of loans also fell, with 33 per cent of SMEs using external finance in 2022 compared to 44 per cent in 2021, however the headline figure still rose due to larger average loan sizes.

“Smaller businesses are clearly adapting to a challenging economic climate, with many reducing their use of external finance,” said Taylor.

“At the British Business Bank, we are committed to supporting these businesses as they seek to achieve sustainable growth, and in turn boost economic productivity, by improving their access to external finance.”

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