Guide
How lending criteria have changed since 2020
What the published evidence shows about SME lending since 2020, what it does not show, and which changes matter to a buyer.
What can be evidenced, and what cannot
A great deal is said about how lending has tightened or loosened since 2020, and very little of it is checkable. No lender publishes its credit criteria. What is published is the price of money, the volume of lending, the availability that lenders themselves report, and the rules of the government-backed schemes.
This page is built on those published sources and stops where they stop. Two limits are worth stating at the front, because they rule out most of what gets asserted about this subject.
First, there is no public source for approval or decline rates in acquisition finance specifically. Figures do exist for business finance applications as a whole, and they are used below, but they cover every purpose and every product. Anybody who tells you what proportion of acquisition applications succeed is telling you something nobody has measured.
Second, criteria are not the same as outcomes. Rising volumes can come from more demand rather than looser lending, and lenders can report tighter availability in the same quarter that lending grows. Both of those are happening at once right now, and the honest reading is set out below rather than resolved into a single story.
The price of money moved, and then only partly moved back
Bank Rate was 1.00% from Thu 5th May 2022, rose to a peak of 5.25% on Thu 3rd Aug 2023, and has since fallen in steps to 3.75%, effective from Thu 18th Dec 2025. Anybody who last borrowed before 2022 is borrowing into a different world, and anybody who borrowed at the peak is now in a market that has come part of the way back.[1]
The part that matters to a smaller business is that the fall in Bank Rate has not passed through evenly by size of borrower.
In June 2026 the effective interest rate on new bank loans to SMEs was 6.36%, against 5.42% for UK private non-financial corporations as a whole. Over the same period the annual growth rate of borrowing by SMEs was 4.1%, against 10.5% for large businesses.[2]
That gap is the single most useful evidenced fact on this page. Two businesses borrowing in the same month, in the same economy, are priced differently because of their size, and the smaller one is also getting a smaller share of the growth in credit. It is a reminder that the identity of the lender is worth money, which is the argument the rest of this site makes.
Government-backed lending stopped being an emergency measure
The clearest structural change since 2020 is that a state guarantee behind part of a lender's exposure went from being a crisis response to a permanent feature of the market.
The Growth Guarantee Scheme succeeded the Recovery Loan Scheme and launched with accredited lenders on Mon 1st Jul 2024. It provides the lender with a 70% government-backed guarantee against the outstanding balance after the lender's normal recovery process, while the borrower remains 100% liable for the debt. Facilities run generally up to £2m per business group, the turnover eligibility limit is £45m on a group basis, and term loans and asset finance are available from three months up to six years. Personal guarantees can be taken at the lender's discretion, but a principal private residence cannot be taken as security within the scheme.[3]
Two points on that paragraph, both of which buyers get wrong. The guarantee protects the lender and not the borrower, so a guaranteed facility is not a softer debt. And an expansion of the scheme was announced in July 2026, raising the turnover limit and lengthening terms, but the scheme page states that it remains operational under the existing terms, so the announced figures are not the ones in force as at Fri 21st Aug 2026.
The scheme is not marginal. As at Tue 31st Mar 2026 it had supported 21,194 facilities totalling £3.64bn through more than 70 lenders, and 1,196 lender claims of £71.34m had been settled against the guarantee, which is 1.96% of the total drawn value. In the 2025 Spending Review the scheme was extended until Tue 31st Mar 2030.[4]
For a buyer, the practical consequence is that a facility which does not work on its own terms sometimes works with a guarantee behind it, and whether a given lender is accredited is now a real question to ask. See government-backed funding.
The pandemic debt is still on the balance sheet you are buying
As at Q2 2025, 18% of all SMEs were still repaying government-backed pandemic funding, meaning Bounce Back Loans or the Coronavirus Business Interruption Loan Scheme, and 9% had repaid theirs.[5]
This is a diligence item that simply did not exist before 2020. A target business may carry pandemic-era debt with years left to run, and how it is treated at completion, whether it is settled, assumed or refinanced, changes what can be borrowed on day one. It also sits in the same queue as everything else the new owner has to service. See refinancing existing debt.
Across the market that debt is being worked off. Nominal gross repayments by SMEs totalled £63bn in 2025, down 3% on 2024 and the third consecutive fall, and in real terms repayments were the lowest on record.[5]
Who does the lending changed more than what they lend against
If one change since 2020 deserves a buyer's attention, it is this one, and it is the least discussed.
Challenger banks accounted for 60% of gross SME bank lending, up from 39% in 2012. Around 50% of smaller businesses used external finance in Q3 2025, with credit cards, overdrafts, and leasing and hire purchase the most used products.[6]
Alongside the banks, non-bank lenders provided £18.3bn of finance to smaller businesses in 2025. Gross SME bank lending excluding overdrafts totalled £68bn in 2025, up 9% on 2024.[5]
Appetite is now distributed across a much wider set of lenders than it was before 2020, and it is distributed unevenly by sector. That is precisely why a business can be declined by one funder and funded by another without anything about the business changing, and why going to the wrong lender is a real and expensive failure rather than a rationalisation.
Applications succeed more often than in 2022, and much less often than in 2019
The SME Finance Monitor success rate for all types of finance application was 53% for the period from Q1 2024 to Q2 2025. That was up from 49% for Q1 2022 to Q2 2023, and still well below the 74% recorded for Q1 2018 to Q2 2019.[5]
Read that carefully, because it is the figure most often misused. It covers applications of every type and for every purpose, from card facilities upwards. It is not an acquisition finance statistic and it should not be presented as one. What it does support is a modest claim: the market got much harder after 2020, it has recovered part of the way, and it has not returned to where it was.
Volumes are rising while lenders report availability tightening
Gross lending to SMEs by the main high street lenders reached £5.3bn in 2026 Q1, up 16% year on year and the highest since the end of the pandemic. Lending to the smallest businesses rose 51%, taking gross lending in the quarter to its highest level since 2018 Q1 excluding the Covid schemes, while lending to medium-sized firms grew 4%. New loan approvals rose 36% by value and 42% by number against 2025 Q1.[7]
In the same period, lenders reported to the Bank of England that the overall availability of credit to the corporate sector was unchanged in Q2, but that credit availability slightly decreased for small and medium businesses while remaining unchanged for large businesses. Spreads on lending to small and medium businesses were unchanged, while spreads for large businesses narrowed. Default rates were reported unchanged across all sizes.[8]
Those two paragraphs point in different directions, and it would be easy to pick whichever suited an argument. The honest reading is that volumes and approvals have grown strongly from a low base, particularly at the smallest end, while the lenders themselves say that availability for smaller firms is not improving and their pricing is not coming in. UK Finance also notes in the same review that an approval is not the same as money drawn.
So: more lending is happening, it is not obviously happening on easier terms, and the improvement is concentrated at the smallest end rather than in the mid-market where most acquisitions sit.
Personal guarantees: a change in conduct, not in law
The other thing buyers ask about is whether guarantees have become harder or softer since 2020. The evidence supports a narrow answer.
In October 2024 a number of UK Finance members committed not to take unlimited guarantees from individuals other than to support a company's liabilities under a merchant agreement, always to recommend that a prospective guarantor obtains independent legal advice before signing, to work with a guarantor on an affordable repayment plan rather than treating insolvency proceedings as anything other than a last resort, and to consider all reasonable options before enforcing against a principal private residence. These are voluntary commitments by supporting members, not rules.[9]
The Financial Conduct Authority looked at this in 2024 and set out that most SME lending sits outside its remit, that personal guarantees are more common in unregulated business lending, particularly to limited companies, and that of 15 firms it surveyed, 8 do not take guarantees on regulated lending at all. It found no evidence of harm warranting further action within the part of the market it regulates.[10]
A further Call for Input on how regulation affects smaller businesses' access to finance closed in 2026 and had not produced a published outcome as at Fri 21st Aug 2026, so nothing here anticipates what it will say.
The practical position for a buyer is unchanged: expect to be asked for a guarantee on an acquisition facility, and read personal guarantees explained before signing one.
What has not changed at all
Nothing in any of the published evidence suggests the underlying arithmetic has moved. The profit figure is still rebuilt before the debt is sized against it. Seller dependency is still the question a credit paper worries about most. Concentration, contract quality and the buyer's own experience still decide the shape of the deal.
If anything, the pressure on those points has increased rather than relaxed, because a market where availability is reported as slightly tighter for smaller firms is one where the marginal proposition gets more scrutiny, not less. Start with what lenders look for and valuation basics.
What this means if you are buying now
The evidenced change that matters most to a buyer is not the interest rate. It is that appetite has spread out. The high street no longer writes most of the SME lending in this country, non-bank lenders are a substantial part of the market, and specialism by sector is how the newer entrants compete.
That is good news and it comes with a cost: finding the right funder is harder work than it was when there were five of them. We know this market and we know specific people who have funded acquisitions in these sectors before, so a proposal goes to someone who has already lent against a business shaped like the one you are buying. Tell us what you are buying and we come back to you with who can fund it and what they will want to see.
The market changed. Which lenders understand your sector changed more.
Tell us what you are buying and how the deal is shaped. We come back to you with the lenders and brokers who fund businesses like this one, and what they will want to see.