The Finance & Leasing Association has backed plans by the Financial Conduct Authority to remove regulatory friction from SME lending, arguing that unnecessary cost and complexity can ultimately restrict businesses’ access to finance.
The intervention follows the FCA’s review of SME finance, which found no evidence that its regulation is itself a major barrier to lending but identified a series of smaller regulatory and market obstacles that can make accessing funding more difficult.
SMEs account for 60% of private-sector employment and 51% of turnover, yet just 21% of the total value of UK business loans is provided to SMEs, according to the regulator.
More than half – 54% – of SMEs do not currently use external finance, while around 60% of those seeking funding during the previous three years were looking to borrow less than £25,000.
DIGITAL CHECKS AND OPEN FINANCE
The FCA is concentrating its response on three areas: reducing duplicated customer checks through digital verification, developing a more proportionate regulatory regime as part of Consumer Credit Act reform and progressing open finance.
SME lending has been identified as one of the priority uses for open finance, which could give lenders access to more timely financial information and potentially make it easier to assess businesses with limited credit histories.
The regulator found the problems can be particularly acute for microbusinesses, which account for 95.5% of SMEs. Complex application processes, repeated checks and difficulties finding appropriate products were among the barriers identified.
The FLA says regulation should protect customers while still allowing responsible lenders to provide finance efficiently and sustainably.
£8.8BN PROVIDED TO SMEs
The trade body’s members are already significant providers of business funding.
FLA figures show its members provided £14bn of asset finance for investment in machinery, equipment and vehicles during the first four months of 2026, of which £8.8bn went to SMEs.
More recent figures show asset finance new business increased by 15% year-on-year in June, with new lending to SMEs rising by 11%.
The FLA says the FCA’s focus on proportionality is therefore welcome, warning that regulation which introduces unnecessary cost, duplication or complexity risks making some forms of finance harder to provide and reducing choice for businesses.
It says the test should be whether regulation delivers better customer outcomes while allowing responsible lenders to provide funding efficiently and sustainably.
The association says it will continue working with the FCA and Government as reforms to SME finance regulation are developed.
