Alternative lending to UK small and medium-sized enterprises reached a record 8.2 billion in the second quarter of 2026, driven by a continuing retreat from high street banks and growing demand for faster, more flexible financing options. Data compiled by the Alternative Business Funding organisation shows that non-bank lending has grown by 34 per cent year-on-year, with invoice finance, asset-based lending and peer-to-peer platforms accounting for the majority of new volumes.
The figures come against a backdrop of tightening credit conditions at traditional lenders. Bank of England data published in June confirmed that net lending to SMEs by major high street banks fell by 1.9 billion over the same period, with many business owners reporting longer decision times and stricter collateral requirements compared with pre-pandemic norms.
“The shift is structural, not cyclical,” said James Whittaker, chief executive of the National Association of Commercial Finance Brokers. “Small businesses need decisions in days, not weeks. Alternative lenders have built their entire proposition around speed and transparency, and the market is responding accordingly.”
The average loan size through alternative channels has risen to 185,000, up from 132,000 in 2024, suggesting that larger, more established SMEs are increasingly turning to non-bank providers. The manufacturing and wholesale sectors have seen the strongest uptake, alongside professional services and construction.
Fintech platforms have also played a significant role, with open banking-enabled credit assessments allowing lenders to evaluate business performance in near real time. The British Business Bank has estimated that alternative lenders now serve approximately 18 per cent of all UK SMEs seeking external finance, compared with 7 per cent five years ago.
However, the sector faces growing scrutiny over interest rates and fee structures. The Financial Conduct Authority launched a thematic review of alternative business lending in March 2026, focusing on transparency of total cost of borrowing and the treatment of customers in financial difficulty. Early findings are expected later this year.
Despite these concerns, the trajectory remains strongly upward. Industry forecasters at Oxbury Economics project that alternative lending could account for more than a quarter of all SME finance by 2028, assuming current growth rates are maintained and regulatory outcomes remain supportive.
For business owners, the expanding menu of options represents a significant departure from the relationship banking model that dominated for decades. “Choice is ultimately healthy,” Whittaker added. “But it places the onus on business owners to shop around and understand what they are signing up for.”