Supporting SME access to finance

A Financial Conduct Authority (FCA) review into understanding how its regulations affect SME access to finance found it wasn’t a major barrier but did identify areas it could help improve.

Small to Medium-sized Enterprises (SMEs) did face demand-side and supply-side challenges in accessing finance, including some smaller regulatory frictions.

SMEs, identified as businesses with fewer than 250 employees and an annual turnover under £44m, account for 60% of employment and 51% of turnover in the UK private sector. The sector’s size is consequently important for economic growth. Yet only 21% of the total value of UK business loans are provided to SMEs and 54% of SMEs are not using external finance in any capacity.

The British Business Bank (BBB) estimates that the outstanding stock of bank lending to SMEs was 22% lower in real terms in 2025 than in 2012. It was concerned that an apparent reluctance among some SMEs to seek external finance and the long-term decline in lending to SMEs could affect SMEs’ ability to invest, innovate and grow.

Higher interest rates than pre-pandemic, increased costs of doing business (energy charges and taxation) and a more uncertain geopolitical environment would account for a more risk-averse sector.

The FCA also identified practical challenges for SMEs accessing finance on both the demand-side and supply-side. These include:

• SME preparedness for accessing finance and issues with navigating the market.
• Challenges in assessing risk and accessing suitable products.
• Regulatory frictions relating to the duplication of customer checks and Consumer Credit Act requirements.
• Other issues relating to commission-based incentives steering micro-SMEs to parts of the alternative lending market, and personal guarantee requirements potentially discouraging some applications.

The FCA will focus on three next steps that it believes could help reduce regulatory frictions.

• It will monitor industry work to explore whether digital verification could reduce duplication in customer checks, while maintaining effective financial crime controls.
• It intends to deliver a proportionate regulatory regime as part of Consumer Credit Act reform.
• The FCA will enable open finance to develop by prioritising high-impact use cases, including SME lending and consumer mortgages.

Part of the review concentrated on business lending of £25,000 or less to sole traders and small partnerships. Around 60% of SMEs seeking finance in the last three years sought less than £25,000, so this perimeter is relevant to a large share of lower-value SME finance.

The full FCA review can be found here:  https://www.fca.org.uk/publication/feedback/fs26-2.pdf