FCA finds no evidence its rules block small business lending

The Financial Conduct Authority has concluded that its own regulation is not a major barrier to small and medium-sized firms raising money.

"We found no evidence that FCA regulation is a major barrier to SME access to finance. Nonetheless, SMEs face challenges accessing finance on both the demand-side and supply-side," the review said. It was published on 17 September 2026.

The regulator opened the review in March. The question was why UK smaller firms take out fewer loans than their counterparts in other countries, and whether its rulebook was part of the cause.

It drew on evidence from small businesses, lenders and representative bodies. Many owners did not know what types of finance existed, could not compare providers, or found the process too complicated.

The FCA said the difficulties were sharpest for microbusinesses, which it put at 95.5 per cent of all SMEs.

Brokers came in for the harder findings. In the unregulated parts of the alternative lending market, the FCA said commission-based incentives could push very small firms towards high-cost, short-term loans that did not suit them.

"This lending generally falls outside our perimeter," the regulator said. Most commercial lending sits outside consumer protection rules and beyond its powers altogether.

The Times reported this week that opaque commission arrangements and limited regulation gave some brokers an incentive to sell expensive debt without disclosing their fees. The Times Entrepreneurs Network reported that one business, Pixapro, had taken on about £1.4m of high-interest debt across 15 funding facilities, at average APRs of about 20 per cent.

Personal guarantees were also identified as a deterrent. Under some agreements an owner becomes personally liable if the company defaults, which can put a home at risk.

The review said "underserved founders", including female, disabled and ethnic minority entrepreneurs, and businesses outside London and the southeast, "face disproportionate difficulties securing credit and accessing investor networks".

The backdrop is a shrinking loan book. Separate analysis published this month found outstanding high street bank lending to smaller companies across Great Britain fell by £26.8bn between 2022 and 2025.

The FCA's next steps are procedural rather than immediate. It says it will deliver a "proportionate" regime as part of the Treasury's reform of the Consumer Credit Act, which covers some small businesses, and will publish a paper early next year setting out a regulatory framework for the first open finance scheme, with SME lending prioritised.

UK Finance, which represents more than 300 companies, welcomed the findings. Its director of commercial finance, Aysha Fernandes, pointed to Consumer Credit Act reform, digital verification and open finance as the practical areas. The trade body is building a voluntary digital verification service with banks and building societies to cut duplication in applications.

Responsible Finance, the trade body for community development financial institutions, is among those pressing for tighter regulation of alternative lending.

For a founder turned down for credit this autumn, the practical reading is blunt. The regulator has cleared its own rules, the next concrete document lands early next year, and the part of the market most likely to sell an expensive short-term loan with a personal guarantee attached remains outside its reach. Until that changes, the protection is reading the commission terms and the guarantee clause before signing.