UK high street banks reported an increase in small and medium-sized enterprise (SME) lending volumes during oral evidence to the Treasury Select Committee on 20 May 2025.

The hearing, chaired by Dame Meg Hillier MP, focused on SME access to finance in the context of post-Covid economic pressures, including the cost of living crisis, inflation and interest rate volatility.

Senior executives from HSBC, Barclays, Lloyds Banking Group and NatWest acknowledged a significant improvement in SME borrowing levels in the first quarter of 2025 compared to 2024, but cautioned that confidence remains fragile and growth is emerging from a historically low base.

Improved activity from a low base

Ian Stuart, CEO of HSBC UK, noted that lending to SMEs is highly sensitive to business confidence. “This is a market that does really well when people are feeling confident about the economy and the future, and it stalls when it has not got that level of confidence,” he said. HSBC has seen a material uptick in lending compared to the same period last year and has launched a strategic shift in business banking, combining increased investment in local relationship managers with greater automation.

Vim Maru, CEO of Barclays UK, reported a 35% year-on-year increase in SME lending in 2024, with further gains in Q1 2025. “The confidence levels have clearly ebbed and flowed through that period, and we continue to see some challenges,” he said, adding that spending time with SMEs to understand their needs has been central to the bank’s strategy.

Charlie Nunn, CEO of Lloyds Banking Group, highlighted that SME sentiment remains above the long-term average despite recent tax increases and trade tariff uncertainty. “Cashflows have continued to strengthen year on year. If we can get the confidence and the plan for growth, there is resilience in this sector,” Nunn said, citing a long-running business sentiment survey.

NatWest CEO Paul Thwaite confirmed that the bank has also recorded significant growth in SME lending, particularly among start-ups. NatWest claims to bank around 20% of all UK start-ups and operates 12 accelerator hubs nationally to support early-stage businesses. “SMEs are the lifeblood of the economy,” Thwaite said. “We need SMEs to grow and borrow, and banks need to play their part.”

Access to finance and regional inequality

Labour MP Lola McEvoy, who represents Darlington, questioned the witnesses about regional disparities in SME finance, particularly in the north-east of England. Thwaite and Nunn both supported the government’s proposed industrial strategy, noting its potential to provide clarity on future growth sectors and stimulate local investment. Both also emphasised the importance of engaging with combined authorities, local mayors and regional universities.

Responding to concerns about access to capital for microbusinesses, Thwaite said that while there is abundant supply in the market, including challenger banks and brokers, the demand side remains underdeveloped. “We still think there is a lot that we can do as a country to encourage awareness and understanding of the ability to access finance,” he said.

Barclays’ Maru said the bank recently allocated a £22 billion fund for business lending and operates a nationwide network of 40 “Eagle Labs” to support SME scale-up activity. HSBC’s Stuart added that personal guarantees remain a key barrier to lending uptake, though HSBC has removed guarantees on around two-thirds of its SME book.

Competition and loan approval rates

All four banks rejected the suggestion that they are unduly risk-averse. Both Barclays and HSBC cited loan approval rates of around 80%. The CEOs also dismissed the notion that large banks are losing ground to challenger lenders, with Thwaite asserting NatWest remains the UK’s largest business lender.

While McEvoy raised data suggesting only 5% of SMEs consider switching lenders if declined credit, the banks stressed their commitment to supporting borrowers. Lloyds’ Nunn pointed to the group’s equity financing arm, Lloyds Development Capital, as a differentiator in enabling scale-up capital beyond traditional loans.

Resolution service and legacy trust issues

The hearing also revisited legacy issues around SME mis-selling and the Business Banking Resolution Service (BBRS). Dame Siobhain McDonagh raised concerns about the perceived independence of the BBRS, given its funding and governance links to seven banks, including Lloyds and NatWest.

End of the line for BBRS: what’s next for SME banking complaints?

Charlie Nunn and Paul Thwaite defended the BBRS’s role and governance. Nunn said the BBRS had become less active over time and that new consumer duty regulations and conduct rules are now the main channels for customer redress. “We have independent ways of operating,” he said, “and that is a really important point going forward.”

Thwaite acknowledged the emotional and financial toll on affected businesses. “It is critical. I like to think the industry has learned the lessons of the financial crisis,” he said, adding that banks are willing to handle specific complaints bilaterally.

SME sector outlook remains mixed

While lending data shows positive movement, the CEOs were clear that SME borrowing appetite remains tempered by economic uncertainty. The regional investment gap, microbusiness access challenges, and trust in financial institutions were recurring themes during the session.