Ministers will hold a high-level meeting with leading bank executives on Tuesday as pressure mounts on lenders to improve access to credit for small businesses, amid growing fears that the UK’s economic recovery could be held back by underinvestment in the SME sector.
Senior figures from HSBC, NatWest and Lloyds will attend the talks to explain how they plan to support the government’s growth strategy, particularly through increased lending to small and medium-sized enterprises (SMEs). The meeting comes just days before the government concludes a major review into SME finance access, which could lead to new regulatory obligations for banks.
Rachel Reeves, the chancellor, has raised concerns that restrictive lending practices by high street banks — including the requirement for personal guarantees and centralised decision-making — are hampering small businesses’ ability to invest and grow.
“The last few years have been incredibly difficult for business,” said a government spokesperson. “That’s why this pro-business government is determined to improve the total business environment, including for small businesses.”
Government data shows that just under 50% of SME loan applications are approved — down from 67% in 2018. The Department for Business and Trade (DBT) said the drop raises “questions as to whether these rejection rates are too high and why this may be the case.”
Many small businesses have turned to high-risk private lenders after being turned down by banks, prompting further concern about the financial resilience of the SME sector, which is crucial to UK jobs, exports and innovation.
Representatives of the banking industry are expected to argue that they are willing to lend more, but that higher SME risk profiles make this difficult under current conditions. They are likely to call for an expansion of the British Business Bank’s loan guarantee scheme, which currently underwrites 70% of qualifying loans.
Trade group UK Finance has pushed for more government funding to support this guarantee, saying it is the only way to scale up SME lending safely.
The meeting will be chaired by Gareth Thomas, minister for small businesses, who has been outspoken about the loss of personal relationships between banks and SMEs. He has criticised the shift to online-only loan applications and is reportedly interested in expanding mutual lenders, which play a key role in SME lending in countries like Germany.
Thomas’s frustration reflects findings from a 2023 Treasury committee report, which accused the sector of “damaging” banking practices and harmful financial regulation. It highlighted the closure of 140,000 SME bank accounts last year, often without clear explanation — a practice labelled “debanking” by critics.
The report concluded that SMEs, already weakened by high inflation, energy price shocks, and pandemic-related disruptions, are now facing unnecessary barriers to finance that risk stifling innovation and long-term growth.
As ministers prepare to wrap up their finance review, the upcoming meeting may be a pivotal moment in determining whether voluntary reforms from the big banks will be sufficient — or whether more robust intervention is on the horizon to ensure small businesses can access the funding they need to grow, export and compete.
