Alt-lenders now lead UK SME credit as risk signals diverge

UK B2B Credit and Lending News Digest 10–16 May 2026  – Covering 10–16 May 2026.

Summary

Funding Circle’s 2025 Economic Impact Report, produced with Oxford Economics, confirmed that alternative providers and challenger banks now account for 68% of UK SME lending, making the Big Four the structural minority.⁷⁷ In the same week, the King’s Speech brought ring-fencing reform.¹ It also brought a statutory 60-day maximum payment term.¹⁴ The BNPL Temporary Permissions Regime opened during the same week.³ The FCA, BoE and HMT also issued a joint statement on frontier AI and cyber resilience.⁴ Policy moved, but the market structure had already shifted.

The signal is bifurcation, not a clean turn. FLA lending prints were strong.⁵ UK Finance mortgage arrears remained low.⁷ SME confidence is fragile.⁶ Vacancies are at their lowest since early 2021.⁸ Card spending has turned negative year on year.¹² Premium Credit found that 90% of SMEs now use credit to fund insurance.¹³ 

Lending is growing faster than confidence; secured credit looks benign while unsecured and SME risk indicators are turning. Reading rate cuts as a simple cycle signal means reading past the divergence.

1. Key developments

• Ring-fencing reform. The Enhancing Financial Services Bill updates bank ring-fencing rules. The biggest direct benefit is for banks above the £35bn deposit threshold: Barclays, HSBC, Lloyds, NatWest and Santander UK.¹
• Late-payment reform. The Small Business Protections Bill introduces a 60-day maximum payment term, mandatory late-payment interest and stronger Small Business Commissioner powers.¹⁴
• UK Finance Plan for Growth. UK Finance called for lower bank capital requirements, redress reform and less regulatory and tax complexity.² ¹⁵
• BNPL regulation. BNPL firms must register between 15 May and 1 July if they want to keep operating when regulation starts on 15 July. Affordability checks, Consumer Duty rules and Financial Ombudsman access will apply.³
• AI and cyber risk. The FCA, BoE and HMT warned that frontier AI creates new cyber risks for regulated firms. Boards will need stronger oversight of AI, third-party technology and incident response.⁴
• GDP and construction. GDP grew 0.6% in Q1 2026. Services rose 0.8%, production rose 0.2% and construction rose 0.4%. But construction was weaker underneath: repair and maintenance rose 3.4%, while new work fell 1.9%.¹⁶ ¹⁷
• Insolvencies. April insolvency data showed 2,296 business insolvencies across the UK and Northern Ireland, down 25% month on month and 8% year on year. Construction accounted for the largest share, with 432 cases.¹⁸
• FLA lending data. Asset finance rose 9%, consumer finance rose 9%, consumer car finance volumes rose 8%, and second-charge mortgage volumes rose 20%. This was a strong March print, but not enough to call it the strongest month of the year.⁵
• FCA appointments. Simon Walls was confirmed as Executive Director, Markets. Johan Sekora joins as COO from SEB, where he led financial-crime prevention.¹⁹
• Consumer-credit promotions. FCA CP26/15 proposes simpler consumer-credit promotion rules and more reliance on Consumer Duty outcomes.²⁰
• Motor-finance redress. The FCA faces four legal challenges to its motor-finance compensation scheme. Hearings are unlikely before October, and payouts could be delayed until at least mid-November.²¹

2. Market signals

Credit risk

• Business failures remain high. April insolvencies fell to 2,296, down 25% MoM and 8% YoY, with construction the largest category at 432 cases.¹⁸
• SME confidence is weak. iwoca/Credit Connect reported that SME recession fears hit a two-year high, with 54% of brokers saying SMEs are worried about recession.¹⁰ Bibby’s SME Confidence Tracker fell to 51% in Q1, down from 66% in Q3 2025.²⁴ The FSB Small Business Index also points to weak confidence.²² ²³
• More firms are under pressure. BTG/Begbies Traynor reported 62,193 firms in critical financial distress, up 36.9% year on year. It also reported 634,867 in significant distress, up 9.6%.²⁵
• The labour market is cooling. Vacancies fell to 711,000 in January–March 2026, the lowest since February–April 2021. Unemployment was 4.9%.⁸
• Court judgments are rising. Commercial judgments rose 1.9% to 176,273 in 2025. There were around 4,728 judgments per working day, up 10% on 2024.²⁶
• Mortgage arrears remain low. Homeowner arrears were 0.91% and buy-to-let arrears were 0.47% in Q1. Secured credit is not the main stress point this quarter.⁷
• Consumer spending is weakening. Barclays reported UK card spending down 0.1% year on year in April, the first annual fall since November 2024.¹²

Lending conditions

• Mortgage rates eased. Selected consumer mortgage rates fell as funding conditions improved. There was no clear public sign of similar easing in commercial lending.¹¹
• Bank Rate stayed at 3.75%. The BoE held rates by an 8–1 vote at its 29 April meeting.²⁷ Catherine Mann and Sam Woods both gave speeches pointing to a cautious policy environment.²⁸ ²⁹
• Lending data was strong. FLA March data showed asset finance +9%, consumer finance +9%, consumer car finance +8% and second-charge mortgages +20%.⁵ EY still expects business-lending growth to slow to 3.5% in 2026, down from 6.9% in 2025.³¹
• Alt-lenders are now central to SME credit. Funding Circle’s report says alternative lenders and challenger banks account for 68% of UK SME lending. It also reports £3bn of loans under management, a £7.9bn GDP contribution, 117,000 jobs supported and £2.2bn in tax contribution.⁷⁷
• Broker demand is softening. iwoca’s SME Expert Index found that 22% of brokers expect SME finance demand to fall, while 57% expect it to rise, down from 74% in Q4 2025.⁷⁸
• Private credit is gaining in property lending. Bloomberg/Bayes reported that debt funds’ share of UK real-estate lending rose to 31%, up from 15% in 2020.³²

3. Where risk is building

• Construction. CPA expects UK construction output to fall 2.5% in 2026.³³ Q1 construction was positive overall, but new work fell 1.9%.¹⁷ Construction also had the most April insolvencies, with 432 cases.¹⁸ The April construction PMI fell to 39.7.³⁴ The proposed retentions ban and 60-day payment cap may help subcontractor cash flow, but they do not change the weak sector trend.³⁵
• Hospitality and retail. Hospitality confidence was deeply negative, while April cost pressures from business rates, wages and employer NI squeezed margins further.²³ Accommodation and food had 312 insolvencies in April.¹⁸ Barclays card spending fell year on year, and the CBI retail sales balance dropped to −68, the weakest reading since the survey began.¹² ³⁶
• Specialist real estate and bridging. MFS entered administration in February, raising questions about higher-risk specialist property lending. The BDLA / Interpath bridging survey closed on 8 May, with results expected later.³⁷ Debt funds’ rising share of CRE lending shows more property credit is moving away from bank balance sheets.³²
• Energy-heavy manufacturing. Ceramics, glass, foundries and packaging remain exposed to energy and oil-linked input costs. This could pressure receivables and credit quality later in the year.³⁸
• SME working capital. Premium Credit reported that 90% of SMEs now use credit to pay for insurance, up from 54%. Average borrowing rose 65% to nearly £1,945, and 41% cited premium increases.¹³
• Regional stress. Scottish critical financial distress rose 49.5% year on year, from 2,353 firms to 3,517. National figures should be checked against regional exposure.³⁹

4. Where credit is getting stuck

• Demand is the issue, not just supply. Only 1.5% of UK SMEs apply for bank loans, compared with up to 22% in major EU countries.⁴⁰ More bank capacity will not automatically create more lending if fewer SMEs apply.
• Construction pipelines need a reset. Construction output rose overall, but new work fell 1.9%. Development-finance teams should focus on the weaker new-work line, not the headline construction number.¹⁷
• Lower prices are not enough. Twenty7tec reported total mortgage searches down 20% month on month, residential remortgage searches down 32%, and BTL remortgage searches down 23%.⁴¹ Even with some rate cuts, borrower confidence remains weak.

5. Who is doing what

Big banks

• Lloyds. Selected Lloyds/Halifax mortgage rates eased, but there was no clear public commercial-lending shift. Lloyds remains cautious on the UK outlook.¹¹
• Barclays. Barclays reported card spending down 0.1% year on year. Its UK Corporate Bank lending balances grew 15% year on year to £31bn, making it the clearest Big Four growth outlier.¹²
• NatWest. Commercial & Institutional lending grew 10.4% year on year to £159.6bn, and full-year guidance was held.
• HSBC UK. HSBC cut selected UK mortgage rates by up to 0.30pp. Group expected credit-loss guidance rose to around 45bps from 40bps.¹¹
• Overall bank read. Consumer mortgage pricing eased, but commercial-credit easing is less visible. Big-bank risk appetite still looks cautious.

Expanding lenders

• Shawbrook. All new unsecured business lending now runs through Playter. Its Q1 loan book reached £19.7bn, deposits reached £18.7bn and 3m+ arrears were 1.7%.⁴³ ⁴⁴
• iwoca. iwoca launched a business credit card with lines up to £250k, 1% cashback and 42 days interest-free.⁴⁵
• Lendable. FT reported 2025 profits up 120% to about £155m and revenues up 90% to about £608m. Lendable issued more new consumer-credit loans by volume than any UK bank in 2025.⁷⁹
• Wayflyer. Wayflyer extended a $250m two-year credit facility with ATLAS SP Partners.⁴⁶
• Allica Bank. Allica continues toward its £1bn working-capital deployment target.

6. Capital and funding

• Wholesale funding and mortgage pricing. Some mortgage-rate cuts show that funding pressure eased, at least for prime consumer lending. Specialist credit remains more selective.¹¹
• Ring-fencing reform. The reform benefits banks above the £35bn deposit threshold and does not directly help smaller challengers.¹
• BoE credit conditions. The BoE Q1 Credit Conditions Survey reported corporate credit availability as broadly flat overall, while availability improved for small, medium and large firms individually.⁴⁷
• Mortgage arrears. Homeowner arrears were 0.91% and BTL arrears were 0.47%, both low by historical standards.⁷
• Energy and labour-market pressure. Energy costs and falling vacancies partly offset the benefit of lower funding costs.⁸ ³⁸
• British Business Bank. NPIF II has supported more than 400 businesses and helped facilitate almost £275m of investment across the North. The British Business Bank also participated in Elliptic’s $17.5m Series D.⁴⁸ ⁴⁹
• CRE debt funds. Debt funds now account for 31% of UK real-estate lending, up from 15% in 2020.³²

7. People and leadership signals

• FCA. Simon Walls was confirmed as Executive Director, Markets. Johan Sekora joins as COO from SEB, where he led financial-crime prevention.¹⁹
• Insolvency Service. Peter Walton and Koral Anderson were appointed Non-Executive Directors, adding board-level capacity as insolvency workloads remain high.⁵⁰
• PRA. Katharine Braddick succeeds Sam Woods as PRA CEO in June 2026. Ring-fencing and capital reform will be early items in her tenure.¹⁴
• Dudley Building Society. Helen Smith was appointed Chief Growth Officer, suggesting smaller mutuals are positioning for growth.⁵²
• R3. Jodie Wildridge was appointed Yorkshire regional chair, adding regional restructuring capacity.⁵⁶
• CIVEA. Amy Collins is in place as President as commercial judgment volumes remain elevated.²⁶ ⁶⁰
• OakNorth. Gergely Zaborszky was appointed CFO, effective July 2026, subject to regulatory approval.⁵³

8. Industry signals

• Broker channel. NACFB membership reached 1,414 firms and 3,011 brokers. Patron lender membership reached 177, up 9% year on year.⁶³ 
• Alternative lenders and BNPL. BNPL registration closes on 1 July, with regulation starting 15 July.³ Smaller providers face higher relative compliance costs.
• Credit insurance. Allianz Trade UK, Coface and Atradius have different UK insolvency forecasts. Credit teams should check each insurer separately, not rely on one market view.⁵⁴ ⁶⁴
• Construction bodies. BCC data shows 73% of firms cite labour costs and 52% cite energy/utilities as price drivers.⁶ The late-payment Bill and retentions ban proposal may help construction cash flow.³⁵ ⁶⁵
• Collections technology. Concentrix and Flexys announced a partnership combining Flexys’ collections software with Concentrix’s BPO scale.⁶⁶
• Fraud and financial crime. Cifas recorded 444,000 fraud cases in 2025, a record.⁶⁷ It also found that one in eight UK workers admit to selling, or knowing someone who sold, company login details.⁶⁸
• Premium finance. Premium Credit found that 90% of SMEs use credit to pay for insurance.¹³
• Late payment. The Fair Payment Code tiers are active, and the 60-day cap reinforces the push for faster payment.¹⁴ ⁶⁹ ⁷⁰
• FCA activity. The FCA remained active on vulnerability, financial crime, bereaved customers, pension-transfer advice, strategy and consumer-credit restrictions.⁷¹ ⁷² 

9. What to watch next

• Commercial pricing. Watch for the first clear commercial-pricing cut outside Barclays. That will show whether easing is spreading beyond prime consumer credit.⁷ ¹¹
• Construction losses. New work fell 1.9%, PMI was 39.7 and construction had 432 April insolvencies. Credit losses may rise later in the year.¹⁷ ¹⁸ ³⁴
• BNPL and retail. The 1 July BNPL registration deadline lands while card spending is already negative year on year.³ ¹²
• AI supervision. Firms should keep AI model lists and third-party AI provider records up to date.⁴ ¹⁹
• Policy mismatch. Ring-fencing reform helps the Big Five, but 68% of SME lending now comes from alternative providers and challenger banks.¹ ⁷⁷

10. Operator actions

• SME pricing. Cut headline pricing where competition demands it, but do not loosen underwriting standards.⁵
• KYB checks. Tighten checks on new SME borrowers, especially new-to-bank unsecured lending.⁶⁷ ⁶⁸
• Construction credit. Re-mark construction and development-finance lines against new work at −1.9%, not the headline construction figure.¹⁷
• Credit insurance. Check insurer appetite separately for construction, hospitality and specialist real estate.⁵⁴ ⁶⁴
• BNPL-exposed merchant lending. Review issuer readiness before the 1 July BNPL deadline, especially in hospitality and retail.³ ¹²
• AI underwriting and collections. Review AI models, third-party providers and incident-response plans.⁴ ¹⁹

Check out https://heygrand.com/ for more on how we can help with AI-driven credit and lending control.

11. Upcoming events

• 20 May — Credit Connect 2026 Industry Leaders Networking Dinner (Credit Connect, Nottingham). 2026 Industry Leaders list announced. 
• 21 May — Credit Connect Spring Commercial Credit & Collections Conference (Credit Connect, Nottingham). Practitioner read on collections behaviour and credit-policy posture. 
• 21 May — Credit Connect Spring Credit & Collections Think Tank (Credit Connect, Nottingham). 
• 21 May — Credit Connect 2026 Credit & Collections Industry Awards (Credit Connect, Nottingham). Third annual Industry Awards — 108 finalists from ~80 companies.
• 21 May — ONS CPI April 2026 (ONS). First print after the Iran-related energy shock washes through; feeds into 18 June MPC.
• 23 May — ONS retail sales April 2026 (ONS). Material for non-essential retail and hospitality propagation read after Barclays card-spending YoY decline.
• Late May — FLA April 2026 statistics (Finance & Leasing Association). After the strong March print, the April release will test whether the trajectory holds.
• 10–11 June — 6th FECMA Pan-European Credit Management Congress (FECMA / CICM, Crowne Plaza London Docklands). 40th anniversary year; CICM-affiliated practitioner gathering.
• 10 June — NACFB Commercial Finance Expo (NACFB, Birmingham NEC). Broker-channel temperature read. 
• 17 June — FCA CP26/15 consultation closes (FCA). Industry response window on outcomes-based CONC 3 promotions reform.
• 18 June — BoE MPC decision (Bank of England). Pricing currently implies hold at 3.75%; Iran-driven inflation pass-through is the swing factor.
• 23–25 June — Credit Strategy Credit Week 2026 (Celtic Manor Resort). Credit Awards, Leadership Awards, Credit 500, Partnership 100 — flagship UK credit-and-collections gathering. 
• 29 June — BoE Money & Credit May 2026 (Bank of England). Next directional read on corporate lending availability.
• 1 July — BNPL TPR window closes (FCA). Register-or-exit deadline for in-scope firms.
• 15 July — BNPL formal regulation live (FCA Deferred Payment Credit) (FCA). Front-loaded compliance work continues to land in checkout economics.
• 11 November — BDLA 2026 Annual Conference (Bridging & Development Lenders Association). Year-end specialist real-estate finance gathering.