Despite increased financial providers since 2008, the Department for Business and Trade (DBT) is concerned about persistently high loan costs due to “limited competitive downward pressure”.

UK Finance figures show net SME lending by major high street banks fell by £7 billion last year, although the decline has slowed compared to previous years. The UK government and the British Business Bank (BBB) are worried about SMEs’ reluctance to borrow, contributing to poor productivity. The BBB reports finance access for smaller businesses dropped from 50% in Q3 2023 to 43% in Q2 2023.

The DBT review will examine finance demand, private sector funding improvements, and growth barriers for marginalised groups, including those with disabilities and ethnic minorities. It aims to understand why loan prices remain high, citing the higher wholesale funding costs for challenger banks compared to larger institutions with customer deposit access.

Small business minister Gareth Thomas emphasised the importance of finance access for SME growth. UK Finance data reveals outstanding bank loans reached £16 billion last year, a 13% increase. While high street bank lending increased in late 2023, representing 45,000 loan approvals and 59,000 overdraft approvals, the overall loan approval success rate remains below 50%, down from 67% in 2019. Furthermore, the high street banks account for only 40% of all SME lending, with challenger banks and alternative lenders now providing the majority.