More SMEs are taking out loans to manage cash flow pressures and existing debt rather than fund long-term expansion, according to new research.
Analysis of data by Funding Circle reveals that firms are increasingly borrowing primarily for working capital purposes, up 17% to 37% to £533 million year on year.
This is said reflect a more uncertain environment where firms prioritise cash flow resilience over capital expenditure.
At the same time, refinancing existing loans has increased by 33% to £88m, while borrowing to cover tax payments has risen by 29% to £25m.
Tax-related borrowing also shows the strongest increase in average loan size (+13% YoY), suggesting that firms are not only more frequently drawing on credit for tax liabilities but are doing so at higher amounts per facility. This is most likely driven by cash flow timing pressures and broader fiscal drag effects.
| Lending by region | % Change YOY | |
| Region | Number | Value |
| Greater London | 7% | 12% |
| South East | 11% | 19% |
| North West | 10% | 21% |
| East of England | 9% | 18% |
| South West | 11% | 11% |
| West Midlands | 9% | 11% |
| East Midlands | 8% | 17% |
| North East | 19% | 22% |
| Scotland | 12% | 20% |
| Wales | 16% | 16% |
| Northern Ireland | 16% | 47% |
| Unassigned | 7% | -23% |
Expansion is still the biggest reason businesses are borrowing, with £701m in lending in 2025. However, its share of total lending has fallen from 50% to 48% year-on-year.
The number of loans has grown 10% YOY, and yet the value has grown 16%. This gap implies that the average loan value is increasing from £77,000 per loan to around £81,000 per loan (roughly 5%).
Lending growth is mostly coming from construction, logistics, and industrial sectors, while consumer-focused industries are staying flat. This suggests businesses are borrowing more to invest in physical projects and operations, rather than to support consumer spending growth.
The clearest growth sector is property and construction, which has increased by 30% year-on-year and remains the largest single industry category.
This likely reflects a combination of ongoing development activity, refinancing within the sector, and expectations of more stable interest rates following recent volatility. Higher average loan sizes may also be a result of rising input and materials costs.
#firms #loans #cash #flow #expansion #Daily #Business