Gross lending to small and medium sized business (SMEs) hit £5.35 billion in the second quarter of this year – its highest level since the pandemic – UK Finance’s latest Business Finance Review found. 

SME lending has shown growth for two and a half years, with gross lending more than 26 per cent higher than in the same quarter of 2025.

The data reflects economic growth seen in the first half of 2026, but there are signs that the conflict in the Middle East has dampened confidence across the quarter.

Despite the positive overall growth trend, the picture is mixed across sectors, with real estate and professional services showing particular resilience, while hospitality and manufacturing lending weakened.

The month-by-month figures show new lending peaked at the turn of the quarter, slowing as the conflict affected business confidence. Smaller firms felt the sharpest impact whilst lending to medium-sized firms remained resilient despite the turmoil caused by the conflict.

Finance applications also fell – notably, medium sized businesses saw a 40 per cent drop in loan applications between March and April alone. The data shows a clear inflection for both loan and overdraft applications at the end of the first quarter in response to the conflict, with a more marked drop in loan applications. There was, however, a slight reversal after ceasefire talks in June, underlining the impact geopolitical tensions have on confidence.

Similarly, overdrafts were more heavily relied on across all sectors, with utilisation rates reaching 51.4 per cent, the highest level since March 2020. Hospitality, transport and construction sectors also drew more heavily on cash deposits.

Across the first two quarters, overall demand for finance has proved resilient in the face of the conflict in the Middle East, but businesses may adopt a more cautious approach in the months ahead as inflationary pressures continue.

David Raw, Managing Director of Commercial Finance at UK Finance, said:

“The continued growth in SME financing since the pandemic is evidence of the sector’s resilience and testament to the collaboration between banks and businesses.

“Amid continued geopolitical tension, small businesses’ confidence inevitably took a bigger hit, and a more cautious business outlook across the sector reflects the uncertainty businesses face going forward and the impact this has on SME lending.”