A new report has revealed that lending to small and medium-sized enterprises (SMEs) in the UK increased to a post-pandemic high during the first quarter of the year, amid rising levels of demand for SME finance.

According to UK Finance’s Business Finance Review, lending to UK SMEs increased by 16 per cent year-on-year to £5.3 billion in Q1 2026, the highest level of SME lending recorded since 2021.

The increase has been driven by strong demand for financing among UK SMEs, as well as the continuing role that high street bank lenders are playing in providing finance to smaller businesses.

The report also found that there had been a 51 per cent year-on-year increase in lending to the UK’s smallest businesses, with Q1 2026 representing the highest level of lending since Q1 2018, excluding finance delivered through lending schemes during the pandemic.

There were also significant year-on-year increases in approvals for new loans, with loan value rising 36 per cent and loan volume jumping by 42 per cent.

Lending increased to SMEs across a wide range of sectors. Recreation and personal services saw an increase of around two-thirds, while real estate lending rose by a third and lending to SMEs in the agriculture sector increased by close to a quarter.

Despite these findings, the report also highlighted early signs that lending was being impacted by recent geopolitical events, such as the war in Iran. After a strong start to the year, loan applications fell in March, the month following the onset of the conflict.

In order to help even more SMEs access the finance they require, UK Finance has urged the government to expand the Growth Guarantee Scheme (GGS), saying that demand for the scheme already exceeds its capacity.

According to UK Finance estimates, there is scope to support additional lending of around £4 billion each year, which it claims would drive more than £10 billion in SME turnover, while providing even more businesses with the funding required to grow, invest and hire.

David Raw, Managing Director for Commercial Finance at UK Finance, commented: “Today’s figures show lenders are supporting SMEs, and it’s particularly encouraging to see the jump in lending to the smallest businesses.”

“The economic outlook remains uncertain, but there are steps we can take to help even more SMEs to thrive, such as expanding the government’s Growth Guarantee Scheme. We believe an expanded scheme could unlock billions in additional lending to help deliver investment, growth and jobs across the UK.”