Access to finance continues to play a key role in enabling small businesses to grow, invest and remain resilient. By analysing Funding Circle’s lending data, we have uncovered where in the UK SMEs are most actively seeking funding, which sectors are driving demand, and what businesses are using finance for.
Data from Funding Circle reveals that while London dominates in SME lending, there is a rising demand in regional cities that signals a broader shift in how and why UK businesses are borrowing.
Lending growth is being driven primarily by construction, logistics, and industrial sectors
Lending growth is mostly coming from construction, logistics, and industrial sectors, while consumer-focused industries are staying flat. This suggests businesses are borrowing more to invest in physical projects and operations, rather than to support consumer spending growth.
The clearest growth sector is Property and Construction, which has increased by 30% year-on-year and remains the largest single industry category. This likely reflects a combination of ongoing development activity, refinancing within the sector, and expectations of more stable interest rates following recent volatility. Higher average loan sizes may also be a result of rising input and materials costs.
Despite this growth, the overall sector mix is fairly stable year-on-year, with only a slight increase in share for Property and Construction (+2%), and minimal shifts elsewhere. This suggests that while some industries are growing, there hasn’t been a major shift in where lending is going across sectors.
Sectors linked to consumers, however, are more varied. Consumer Services (+46%), Wholesale (+40%) and Automotive (+22%) all show strong growth, indicating resilience in parts of the broader consumer supply chain and supporting ecosystem. However, more discretionary spend-facing sectors such as Leisure and Hospitality (-1%) and Arts & Entertainment (-2%) are broadly flat or slightly down in lending activity.
This reflects a “selective spending” environment. Businesses in the supply chain and industrial sectors are borrowing more, while consumer-focused sectors remain weaker. This likely shows that households are still cautious with spending due to cost-of-living pressures, and businesses are focusing more on efficiency and managing stock rather than expanding consumer-driven areas.
Which UK regions/cities have the highest lending activity?
According to the data sourced from Funding Circle across their term loan lending, it’s clear that the overall market value is growing faster than the number of loans. The number of loans has grown 10% YOY, and yet the value has grown 16%. This gap implies that the average loan value is increasing from £77k per loan to around £81k per loan (roughly 5%).
London dominates the market, but it isn’t the fastest-growing. While Greater London remains the UK’s leading region for SME lending, with £295m in 2025, the demand is far from concentrated in the capital alone, with several regions establishing themselves as key drivers of borrowing activity and a gradual decentralisation of growth away from London. The South East recorded £214m in lending, followed by the North West at £170m, underlining the strength of SME demand across the UK’s major economic regions.
Most notably, year-on-year growth figures reveal a shifting landscape. Northern Ireland saw lending increase by 47%, making it one of the fastest-growing regions for SME finance and signalling rising business confidence beyond traditional hotspots. The North East saw a 22% increase in value alongside an increase in loan count by 19%, suggesting a strong growth across the board for this region. Following this, the North West (+21%), Scotland (+20%) and South East (+19%) all saw an increasing value of loans.
| Lending by region | % Change YOY | |
| Region | Number | Value |
| Greater London | 7% | 12% |
| South East | 11% | 19% |
| North West | 10% | 21% |
| East of England | 9% | 18% |
| South West | 11% | 11% |
| West Midlands | 9% | 11% |
| East Midlands | 8% | 17% |
| North East | 19% | 22% |
| Scotland | 12% | 20% |
| Wales | 16% | 16% |
| Northern Ireland | 16% | 47% |
| Unassigned | 7% | -23% |
Working capital is the most important structural driver for taking out loans.
Expansion is still the biggest reason businesses are borrowing, with £701m in lending in 2025. However, its share of total lending has fallen from 50% to 48% year-on-year, showing that growth-focused borrowing is becoming less dominant. This suggests businesses are becoming more cautious about long-term investment due to higher costs and are focusing more on short-term cash needs.
Working capital is reported for 37% of loans, at £533M, which is a +17% change YOY. The data indicate that firms are increasingly borrowing primarily for working capital purposes, not for investment expansion. This is often reflective of a higher cost/uncertainty environment, where firms prioritise cash flow resilience over capital expenditure.
At the same time, refinancing existing loans has increased by 33% to £88m, while borrowing to cover tax payments has risen by 29% to £25m. This shows businesses are increasingly borrowing to manage cash flow, debt, and ongoing financial pressures.
Tax-related borrowing also shows the strongest increase in average loan size (+13% YoY), suggesting that firms are not only more frequently drawing on credit for tax liabilities but are doing so at higher amounts per facility. This is most likely driven by cash flow timing pressures and broader fiscal drag effects.
This lending trend reflects a broader shift in borrowing. While overall lending is still growing year-on-year, businesses are borrowing less for expansion and more for day-to-day cash flow needs and refinancing existing debt.
The UK SME lending market is still strong and growing, but there’s a growing emphasis on financial flexibility and essential investment
The UK SME lending market is still growing and remains resilient, but businesses are becoming more focused on financial flexibility and essential investment rather than broad expansion.
More businesses are borrowing to manage cash flow, refinance debt, and cover tax costs as they deal with ongoing cost pressures. Property and construction are driving much of the growth, alongside strong activity in logistics and industry. In contrast, consumer-focused sectors remain weaker as spending demand stays cautious.
London still leads SME lending activity, but growth is spreading more across the UK, with strong performance in the North West, North East, Scotland, and Northern Ireland. This suggests business lending is becoming more balanced across different regions.
