Challenger Banks Lending to Small Businesses at Record High

Last year, challenger and specialist banks in the UK lent a staggering £35.5 billion to small businesses. With a number that large it comes as no surprise to discover that these smaller modern banks exceeded the amounts lent by Britain’s biggest banks such as Lloyds Banking Group, NatWest Group and Barclays.  

What are Challenger Banks?

Challenger banks, referred to as such because they “challenge” some of the more established institutes by offering modern financial technology and being more focused on individual customer support. Many of these banks are also known as neo banks because they have no physical branches and are digital-only.  

British Business Bank’s Research

Research has revealed that these challenger banks not only exceeded lending by the UK’s top 5, but they also lent more money to small businesses in 2022 than since records began in 2012. This information is according to a report from British Business Bank (BBB) who are backed by the British Government and collect their data from the Bank of England. The Government’s covid loan schemes were administered by the British Business Bank as was Future Fund that administered over a massive £80 billion worth in loans across 1.67 million businesses.  

The Struggle for Small Businesses

The last year has been particularly strenuous for smaller businesses as they battled with continuously higher costs while they simultaneously saw less spend from consumers. It is estimated that around 5.5 million small businesses across the UK have been fighting to stay afloat with the rising costs of inflation, soaring energy prices and the growing cost of living crisis that we are all facing. 

Traditional Lending

Traditionally, the most well-known banks in the UK have dominated small business lending. These banks include HSBC, Lloyds Banking Group, NatWest Group, Santander and Barclays

But this is the second year in a row that challenger and specialist banks have surpassed these large banking groups. With challenger banks just taking the lead at 51% share of the market in 2021, going up to 55% in 2022.  

Challenger and Specialist Banks – Starling and Shawbrook

Challenger banks such as Starling Bank and specialists such as Shawbrook Bank have taken a firm grip of the market with a growing number of business clients. Starling is a digital challenger bank. They are committed to the pursuit of eco-friendly sustainability and to combating climate change. Because of this they are a branchless, digital bank with debit cards made from recycled plastic. As of June 2022 statistics, Starling Bank passed the mark of 3 million current accounts of which 460,000 were small business accounts. 

Shawbrook is a specialist saving and lending bank who offer business finance, residential and commercial mortgages, saving products, and personal loans. Their purpose is “to power up ingenuity to create opportunity, every single day.” Shawbrook provide practical lending and savings products to over 300,000 active customers as individuals, businesses, and real estate investors. 

The report from British Business Bank, suggested that these types of banks such as Starling and Shawbrook, have sought out new opportunities such as lending to the sectors most affected by the pandemic which could be why they are taking hold of more of the market.  

Changes in the Statistics

However, it is also reported that last year there were fewer small businesses who sought out external finance with the fear of uncertainty hanging over their heads about rising costs and economic strains. In the final quarter of 2022, a third of small businesses were using finance, this is down from 44% in the previous year. 

It is suggested that the businesses who did take out a loan, sought larger amounts than the average in years past. This is because the study showed that the total value of lending grew despite a decrease in the amount of SME’s taking loans. Gross bank lending went up by £7.4 billion to reach £65.1 billion, a significant increase. 


It is clear from this report that there is robust growth from these challenger and specialist banks as businesses look at all their financial options. For a small business to survive now it is imperative that they continue to adapt in this challenging economic climate. Through 2023 it will be interesting to see how these challenger and specialist banks continue in the market. 

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