Why 35 Percent of UK SMEs Don't Borrow: SME Finance Behaviour Statistics 2025

UK small business finance is not just about who gets a loan, it is about who never even tries. The latest evidence shows a sizeable "non-borrowing" segment that stays out of debt even when money is tight.

Three numbers set the scene:

• 35% of SMEs met the SME Finance Monitor definition of a Permanent non-borrower (PNB) in the year ending Q4 2024, unchanged from 2023, meaning no apparent appetite for external finance. Source: SME Finance Monitor (full report).
• 42% of SMEs were using any external finance in Q2 2025. Source: SME Finance Monitor Q2 2025 presentation pack.
• 61% of SMEs agreed they would accept slower growth rather than borrow to grow faster (year ending Q2 2025). Source: SME Finance Monitor Q2 2025 presentation pack.

What counts as "don't borrow" in the SME Finance Monitor

The headline 35% figure refers to Permanent non-borrowers (PNBs). In the SME Finance Monitor, PNBs are SMEs who are not using external finance and who show no inclination to do so, based on their current views. Source: SME Finance Monitor Q2 2025 main deck.

Two details matter for interpreting trends:

• The definition was revised from Q1 2023 to better account for government-backed pandemic funding, and SMEs that applied for that funding can no longer be classed as a PNB. Source: SME Finance Monitor (full report).
• In the year ending Q2 2025, the share meeting the PNB definition was 38%, while 44% were using external finance (year ending Q2 2025). Source: SME Finance Monitor Q2 2025 main deck.

SME finance behaviour stats you can use for planning in 2026

SME Finance Monitor: demand, attitudes, and "would-be seekers"

• External finance use: 42% of SMEs were using any external finance in Q2 2025. SME Finance Monitor Q2 2025 presentation pack.
• PNBs: 35% met the PNB definition in the year ending Q4 2024. SME Finance Monitor (full report).
• Attitudes to borrowing: In 2024 as a whole, 38% were "happy to borrow to grow". This was unchanged for the year ending Q2 2025, but in Q2 2025 itself it dropped to 33%. SME Finance Monitor Q2 2025 presentation pack.
• Borrowing behaviour: In the year ending Q2 2025, borrowing events were stable at 13%, while most SMEs were "happy non-seekers" (81%). SME Finance Monitor Q2 2025 presentation pack.
• Need for funding: The "need for external funding" (whether applied or not) was 8% in the year ending Q2 2025. SME Finance Monitor Q2 2025 presentation pack.
• Hidden demand (discouraged borrowers): In the year ending Q2 2025, 6% were "would-be seekers" of finance and 16% were "future would-be seekers". For would-be seekers, the main reason for not applying was process (44%), followed by discouragement (30%). SME Finance Monitor Q2 2025 presentation pack.

Longitudinal Small Business Survey: who seeks finance, and who already uses it

The Longitudinal Small Business Survey (LSBS) gives a useful cross-check on finance use and application behaviour, split by employers vs non-employers.

• SME employers (1 to 249 employees): 72% were using some form of external finance in 2024. In the preceding 12 months, 15% had sought external finance, up from 2023 and 2022. Source: LSBS 2024 SME employers.
• Businesses with no employees: 49% were using some form of external finance in 2024. In the preceding 12 months, 12% sought external finance, up from 2023 (8%) and 2022 (7%). Source: LSBS 2024 no employees.

British Business Bank market commentary: what demand looks like when firms do borrow

The British Business Bank's Small Business Finance Markets 2024/25 report ties borrowing behaviour to the investment climate, costs, and "risk-off" decision-making.

• The share of smaller businesses using external finance fell from 50% in Q3 2023 to 43% in Q2 2024, and the share classed as PNBs rose from 31% (Q3 2023) to 35% (Q2 2024). Source: Small Business Finance Markets 2024/25.
• Gross bank lending totalled £62bn in 2024, up 4.5% on 2023, while challenger banks' share edged up to 60% of total bank lending. Source: Small Business Finance Markets 2024/25.

Why SMEs don't borrow: five drivers the data keeps pointing to

1) Many SMEs actively choose slower growth over debt

In the SME Finance Monitor, 61% of SMEs agreed they would accept slower growth rather than borrow to grow faster (year ending Q2 2025). That is not a supply problem, it is a preference. SME Finance Monitor Q2 2025 presentation pack.

The British Business Bank report also flags risk and "deleveraging" motives as key reasons for low demand for finance, and notes intermediary evidence that nearly 46% of small businesses cite risk or debt aversion as a reason not to apply. Small Business Finance Markets 2024/25.

2) The cost of credit is doing real damage to confidence

When businesses think they are underinvesting, the most common reasons are price-related. The British Business Bank report finds 58% cited credit being too expensive, and 55% said they could not borrow at a reasonable rate. Small Business Finance Markets 2024/25.

On the SME Finance Monitor side, "would-be seekers" who do not apply often point to the process (which includes "think it's too expensive" and "too much hassle") as the main barrier. In the year ending Q2 2025, process was the top reason (44%). SME Finance Monitor Q2 2025 presentation pack.

3) "Discouragement" is still a major part of the story

Some SMEs step back because they expect a poor outcome. In the year ending Q2 2025, 30% of would-be seekers said their main reason for not applying was discouragement (they asked informally, felt put off, assumed they would be turned down, or felt they were already borrowing all they could). SME Finance Monitor Q2 2025 presentation pack.

Even among those open to finance, confidence is fragile. In the SME Finance Monitor, 39% of SMEs felt it would be difficult for a business like theirs to get finance (year ending Q2 2025). SME Finance Monitor Q2 2025 presentation pack.

4) Many businesses do not shop around, and awareness is a barrier

In 2024, the British Business Bank's Business Finance Survey data shows the share of businesses that considered only one finance provider rose from 51% (2023) to 58% (2024). Over the same period, confidence in obtaining information about finance types and providers fell from 60% to 57%. Small Business Finance Markets 2024/25.

Intermediaries also reported that lack of awareness is the most significant barrier to demand for finance, with 69% highlighting it. Small Business Finance Markets 2024/25.

5) A lot of SMEs rely on internal funding, including personal funds

Many SMEs do not borrow because they patch cash needs in other ways. In the SME Finance Monitor, 35% of SMEs had an injection of personal funds into the business in the year ending Q2 2025. SME Finance Monitor Q2 2025 presentation pack.

And in the year ending Q2 2025, only 8% of SMEs reported a "need for external funding" (whether they applied or not). That low "need" number helps explain why a big non-borrowing segment can persist, even during uncertainty. SME Finance Monitor Q2 2025 presentation pack.

What this means for 2026 decision-making

If you are planning for 2026, the takeaway is simple: availability of finance is only half the battle. The other half is demand, confidence, and perceived value.

• For SME owners: being "anti-debt" can be rational, but it can also lock you into slow investment and higher long-run costs. The data suggests many firms will not move unless cost and uncertainty improve, and unless the journey to a good product is simpler.
• For lenders and brokers: the opportunity is not only in approvals, it is in converting discouraged and low-awareness businesses. The evidence that many firms consider only one provider makes distribution and education a growth lever.
• For policy and ecosystem actors: reducing "friction" (process burden, price shock, and information gaps) matters because it shows up directly in non-application behaviour.

Practical checklist: if your business "doesn't borrow"

• Separate identity from strategy: decide when "no debt" is a rule, and when it is a case-by-case tool.
• Price the downside properly: compare the cost of finance with the cost of delay, such as lost capacity, slow delivery, missed contracts.
• Reduce application friction: keep management accounts current, document cashflow drivers, and prepare security details early.
• Shop around on purpose: the data shows many businesses do not, which raises the risk you accept a poor fit or walk away too early.
• Stress-test "self-funding": if you rely on personal injections, set limits and define triggers for switching to external funding.

Conclusion

The 35% "don't borrow" headline is not a mystery group, it is a measurable segment of Permanent non-borrowers tracked over time in the SME Finance Monitor. In 2025 data, reluctance is reinforced by cost pressure, discouragement, limited shopping around, and a strong preference for slower growth over taking on debt. For 2026, the winners will be the SMEs and finance providers who treat demand barriers as seriously as supply.