The findings, based on analysis of 2025 data, carry practical implications for accountants and finance professionals advising SME clients, as more businesses turn to credit to manage cash flow timing pressures rather than to fund long-term investment.

Borrowing to cover tax payments increased 29% year-on-year to £25 million in 2025. Tax-related lending also recorded the strongest increase in average loan size of any borrowing purpose, up 13% year-on-year, suggesting that SMEs are not only borrowing for tax liabilities more frequently but doing so in larger amounts each time.

The trend is consistent with broader fiscal drag effects and cash flow timing pressures, where the gap between when a liability falls due and when cash is available to meet it is increasingly being bridged through external finance.

Expansion remains the single largest reason SMEs borrow, with £701m in lending in 2025, yet its share of total lending has fallen from 50% to 48% year-on-year, reflecting growing caution around long-term capital investment.

Working capital now accounts for 37% of all loans, with £533m borrowed for this purpose in 2025, up 17% year-on-year, while refinancing of existing debt has seen the sharpest rise, up 33% to £88m.

The overall market is still growing, with total loan values up 16% year-on-year against a 10% increase in loan numbers. This implies that average loan sizes are rising, from approximately £77k per loan to around £81k, a 5% increase that may reflect both higher borrowing needs and increasing cost pressures across sectors.

At a sector level, Property and Construction recorded the strongest growth, up 30% year-on-year, likely driven by ongoing development activity, refinancing within the sector and expectations of more stable interest rates. Higher average loan sizes in this sector may also reflect rising input and materials costs.

Consumer Services (+46%), Wholesale (+40%) and Automotive (+22%) all showed strong growth, indicating resilience in parts of the supply chain. By contrast, more discretionary sectors such as Leisure and Hospitality (-1%) and Arts and Entertainment (-2%) remained flat or slightly down, consistent with ongoing household spending caution.

The regional picture shows growth decentralising away from the capital. Greater London remains the UK’s largest SME lending market, with £295m in 2025, but its year-on-year growth in both loan numbers (+7%) and values (+12%) sits below the national average.

The fastest growth is coming from elsewhere, with Northern Ireland seeing lending value rise 47% year-on-year, followed by the North East (+22%), the North West (+21%), Scotland (+20%) and the South East (+19%).

For Scottish firms in particular, the 20% rise in lending value, alongside a 12% increase in loan numbers, places Scotland comfortably ahead of the national trend and among the strongest-performing regions in the UK.

For SME clients, the data reflects a lending market that is still active and growing, but where the motivations for borrowing are shifting. Businesses are increasingly using finance as a cash flow management tool, covering day-to-day operating costs, managing debt and meeting tax obligations, rather than funding expansion.

For accountants and finance professionals, this trend underscores the value of proactive conversations with SME clients around cash flow planning, tax payment timing and when short-term borrowing makes financial sense.

As average loan sizes grow and refinancing activity increases, understanding a client’s existing debt profile will be increasingly relevant to broader financial planning advice.