Banks lent £5.35bn to small and medium-sized businesses in the three months to June, according to UK Finance. That is the highest quarter since the pandemic and 26% more than a year earlier. In the same period, businesses were using 51.4% of their overdraft limits, the most since March 2020. Both figures come from the trade body's Business Finance Review for the second quarter of 2026. It was published on 21 September.
01What the £5.35bn number is, and what it is not
The figure is gross new lending by the main high street banks to SMEs. UK Finance says it is the tenth quarter in a row of year-on-year growth. It is also the fastest growth since the recovery began in early 2024.
It is not a return to the old normal. According to the same review, lending in the first half of 2026 was still about a third below the 2019 average. That is after inflation is taken into account.
It was not spread evenly either. UK Finance reports that real estate and professional services did most of the work. Lending to manufacturers in the first half of the year was 6% lower than a year ago. Hospitality was 1.5% lower.
And the quarter had two halves. Lending peaked around the turn of the quarter and eased in April and May. UK Finance links the dip to the conflict in the Middle East and the jump in energy prices.
02Why are smaller firms still using overdrafts?
The review draws a line between small firms and medium-sized ones.
The jump in lending to the smallest firms in the first quarter went into reverse in the second. UK Finance says the confidence shock hit small firms hardest, especially in manufacturing, transport and storage. Even so, lending to small firms was still higher than in the same quarter of 2025.
Lending to medium-sized firms kept growing year on year. But their loan applications fell sharply. By value, applications from medium-sized firms dropped 40% between March and April alone. Applications fell for small firms too, though by less.
What did not fall was overdraft use. It rose in both groups. Small-firm overdraft approvals had a strong end to the quarter. UK Finance also reports that hospitality, construction and transport businesses drew more heavily on their cash deposits.
So the pattern is this. Fewer firms applied for a new loan. More firms leaned on the overdraft they already had.
David Raw is Managing Director of Commercial Finance at UK Finance. He said: "The continued growth in SME financing since the pandemic is evidence of the sector's resilience and testament to collaboration between banks and businesses."
03What should a founder do with this?
Two things stand out for a small business owner reading these numbers.
First, approvals were still higher than a year ago for both small and medium-sized firms. If you held off applying in the spring, note this. The banks were still saying yes to more businesses than in 2025.
Second, an overdraft is a costly way to fund a gap that keeps coming back. It suits a few weeks of cover. It does not suit stock you buy every season or a customer who always pays late. Our guide to working capital finance options matches each kind of gap to the facility built for it.
Your bank may have said no, or offered only an overdraft. The wider market has moved on since 2019. Our story on the fall in bank lending to small businesses over three years explains where the money went. A broker can put the same case for business growth finance to a range of lenders beyond the high street. You then know which ones fit before you apply.
