Challenger and specialist bank lending hits £35.5bn in 2022

According to the Small Business Finance Markets 2022/23 report, the share of total gross lending to SMEs by challenger and specialist banks in 2022 was 55%, the highest level on record. 

This also marks the second consecutive year in which the challenger and specialist banks’ share exceeded that of the big five banks.

Overall, gross bank lending saw a rise of 12.8% compared to 2021, totalling £65.1bn last year.

The British Business Bank report emphasised that the increase is due mainly to larger average loan sizes.

Despite this news, the research also highlighted a significant drop in the proportion of smaller businesses using external finance — from 44% in 2021 to 33% last year.

In addition, the survey findings showed that the success rate for those seeking loans fell sharply from 80% to 64% year-on-year.

The rise of investment in net zero deals

The British Business Bank’s report also revealed that equity markets are adapting to the growing demand for investment in green innovation.

Net zero deals are outperforming the wider equity market and currently make up 12% of all smaller business equity deals, a noticeable increase from 5% in 2018.

According to the data, investment value of net zero-related deals rose by 184% over the past year, soaring to a new record level of £1.7bn.

The majority of them are concentrated in London (36% of all deals), with the south east of England and Scotland also accounting for a significant share of net zero deals.

Commenting on the latest Small Business Finance Markets report, Louis Taylor, CEO at British Business Bank, said: “Today’s report finds strong growth from challenger and specialist banks, as well as asset finance provision, as businesses seek alternative finance options. 

“There are promising signs of growth in the net-zero deal sector as equity finance markets respond to growing demand for investment in green innovation. 

“Smaller businesses are clearly adapting to a challenging economic climate, with many reducing their use of external finance. 

“At the British Business Bank, we are committed to supporting these businesses as they seek to achieve sustainable growth, and in turn boost economic productivity, by improving their access to external finance.”