The bank retreat
The big-five banks now provide a minority of new lending to smaller UK companies. For a borrower, that is the case for running a process rather than accepting the first quote.
- Dated
- 4 March 2025
- Desk note
- Dated to the data
- Updated
- 4 March 2025
- Reading
- 6 min
Managing Director
Challenger and specialist banks now supply about 60% of new bank lending to smaller UK businesses, having passed the big-five high-street banks in 2021. Beyond the banks, a parallel pool of private credit has grown from near nothing. For a company raising or refinancing debt, the headline is not that the banks have withdrawn. It is that the bank is now one quote among many, and the cost of treating it as the only one has risen accordingly.
For most of the post-crisis decade, “going to the bank” was a fair description of how a mid-sized company financed itself. The four or five clearing banks held the relationship, the current account and the first call on any new facility. That is no longer the shape of the market. On the British Business Bank’s own series, the big-five share of gross bank lending to smaller businesses has fallen from about two-thirds in 2014 to two-fifths in 2024.
The big-five banks fell below half of new bank lending to smaller businesses in 2021.
| Year | Big-five high-street banks | Challenger & specialist banks |
|---|---|---|
| ’14 | 63% | 37% |
| ’15 | 62% | 38% |
| ’16 | 58% | 42% |
| ’17 | 51% | 49% |
| ’18 | 49% | 51% |
| ’19 | 52% | 48% |
| ’20 | 68% | 32% |
| ’21 | 49% | 51% |
| ’22 | 45% | 55% |
| ’23 | 41% | 59% |
| ’24 | 40% | 60% |
- Challenger & specialist banks
- Big-five high-street banks
Share of gross BANK lending to smaller UK businesses: challenger & specialist banks vs the big-five high-street banks. 2014 and 2020–2024 are reported (big-five fell from 63% in 2014 to 41% in 2023); 2015–2019 are read from the source's published chart. The 2020 dip reflects Covid-scheme lending routed through the big-five.
Source · British Business Bank, Small Business Finance Markets 2025
Two things stand out in that chart. The first is the 2020 dip in the challenger share: it is real, and it is the exception that proves the rule. When the Covid loan schemes flooded the system, the money was routed overwhelmingly through the big-five, briefly reversing the trend before it resumed. The second is the crossover itself. 2021 is the year the high-street banks stopped being the market and became, statistically, the smaller half of it.
≈60%
Share of new bank lending to smaller UK businesses supplied by challenger and specialist banks in 2024, up from about 37% a decade earlier.
Source · British Business Bank, Small Business Finance Markets 2025
Where did the other half of the market come from?
Three places, broadly. Challenger and specialist banks, names that did not exist or were marginal fifteen years ago, built balance sheets aimed squarely at the credits the clearing banks found awkward: asset-backed, sector-specialist, event-driven. Asset-based lenders grew by lending against what a company owns rather than only what it earns. And a third pool formed almost from nothing: private credit.
Private credit, direct lending by funds rather than banks, is the part of the story most owner-managers have not yet priced in, because it rarely advertises. The Bank of England put the outstanding UK stock at about £59.5bn in 2024, grown from a near-zero base a decade earlier at a compound rate of roughly 54% a year. That is a parallel banking system, and for deals in the lower-mid-market it is increasingly where the flexible money sits.
A parallel pool of capital: UK private credit grew from near zero to about £60bn.
| Year | UK private credit (£bn) |
|---|---|
| ’13 | £0.5bn |
| ’15 | £1bn |
| ’17 | £2.1bn |
| ’19 | £4.3bn |
| ’21 | £12.6bn |
| ’22 | £21bn |
| ’23 | £38bn |
| ’24 | £59.5bn |
- Outstanding UK private credit
Outstanding UK private-credit stock. The 2013 (~£0.5bn) and 2024 (£59.5bn) endpoints are reported and imply a compound growth rate of roughly 54% a year; intermediate years are modelled between them.
Source · Bank of England, evidence to the House of Lords Financial Services Regulation Committee (2025)
What the shift means when you are the borrower
The practical consequence is narrow and important. If the supply of credit has fragmented across dozens of lenders with different appetites, then the price of going to one — your one — is no longer just the margin it quotes. It is the offer that was never made: the lender whose box the deal fits best was not in the process, so its terms never reached the table. In a single-bank process that gap is invisible. A competitive process exists to surface it.
A high-street “no” is one lender’s appetite, not the market’s verdict. The market is now mostly somewhere else.
This is not a case against the clearing banks. Where a clean, cash-generative credit fits a keen bank margin, the incumbent frequently deserves to win — and a fair process lets it. What a borrower cannot afford is to assume that outcome. Put the rest of the field in the room and the bank’s offer is either confirmed as the best available or improved until it is.
Questions a CFO asks
Common questions
- Are challenger and specialist banks safe to borrow from?
- They are regulated UK banks and direct lenders, not a fringe. The point is not that they are riskier; it is that each underwrites to its own box, so the right one for a given credit is found by approaching several, not by accepting the first answer.
- Does a high-street decline mean the business is not creditworthy?
- No. A decline says the deal sits outside that bank’s current box — sector concentration, security coverage, ticket size, or where its book already stands. Those constraints move bank by bank and year by year. Businesses declined on the high street routinely fund elsewhere, often on terms better fitted to the plan.