The turn of the year brings renewed momentum in the lending market. After the predictable slowdown of December, January typically marks the reopening of pipelines, refreshed credit appetites, and a surge in SME plans for growth, investment, and refinancing. With early data from Q1 2025 already emerging — including £4.6 billion in new SME lending from high street banks in January alone — it’s clear that business finance is regaining pace.
This blog explores what the new year means for borrowing activity, where capital is likely to flow, which sectors may lead demand, and how lenders will approach underwriting as the 2025 business cycle unfolds.
December is usually defined by caution, delays, and reduced underwriting capacity. But once the calendar flips to January, the market typically reawakens.
The result is a predictable New Year lending bounce, with both supply and demand rising sharply compared to December.
Initial market indicators show a robust opening to the year. High street banks issued £4.6 billion in new SME lending in January 2025, a figure aligned with pre-pandemic norms and reflective of stronger credit appetite.
Although it’s early in the year, the January data points to a more confident lending environment — one that may continue into Q2 if economic conditions remain stable.
With borrowing flows increasing, SMEs need to think strategically about the timing and structure of new finance.
The January–March surge means that applications submitted early in Q1 often move fastest. As lenders face heavier volumes later in the quarter, turnaround times can stretch.
Historically, Q1 offers:
This combination makes it an opportune time to refinance existing debt at more favourable rates or terms.
Many SMEs front-load investment into Q1 so that results land within the same financial year. This aligns lender appetite with business objectives.
Lenders will be watching early-year trading closely. Up-to-date numbers significantly improve approval odds.
Sector-specific borrowing patterns will shape the flow of capital in the coming months.
With easing supply chains and steadier energy prices, manufacturers are returning to capex investment, equipment upgrades, and working-capital lines.
Growing demand for consultancy, digital services, and outsourced functions is prompting firms to hire, expand office space, and invest in technology.
Post-Christmas stock refresh and logistics spending typically fuel demand for short-term working capital in Q1.
If interest rates stabilise or fall, developers and contractors may re-activate shelved projects, leading to higher bridging, asset finance, and trade credit demand.
Demand for equipment financing and acquisition finance continues to grow as consolidation accelerates in the sector.
Hospitality, transport, and certain discretionary consumer industries may continue to borrow cautiously, depending on cost inflation and consumer confidence.
Although credit appetite tends to strengthen in Q1, lenders remain highly selective. Underwriting in early 2025 is likely to prioritise:
Strong forecasts and evidence of stable customer pipelines will carry more weight than headline profits.
Lenders will assess a borrower’s ability to manage rate fluctuations, even if cuts are expected later in the year.
With fresh management accounts and annual results available, lenders will scrutinise:
Lenders may reward SMEs with diversified revenue streams or lower-risk customer bases, especially in uncertain markets.
Aggressive revenue assumptions may face pushback; sustainable growth will be favoured.
Overall, the mood among lenders entering Q1 appears more constructive than at any time since early 2022 — but with disciplined underwriting still very much in place.
To position themselves effectively in the new lending cycle, SMEs should consider:
Accurate accounts and clear forecasts speed up approvals.
Those who move early in the year often access the best terms.
Aligning borrowing with operational planning avoids rushed decisions later in the year.
Competition increases in Q1 — meaning pricing, structures, and covenants may be more flexible.
Economic volatility hasn’t disappeared; cash headroom remains essential.
January and Q1 traditionally inject renewed energy into SME borrowing — and 2025 is no exception. With £4.6 billion of new lending already flowing from high street banks and alternative lenders reopening pipelines, the year begins with momentum.
For SMEs, this presents both opportunity and urgency. Acting early, preparing thoroughly, and aligning finance with strategic objectives can help businesses secure favourable terms and build a strong foundation for the year ahead.
The signals from the first quarter suggest that 2025 may be a more constructive lending environment — but success will still depend on smart preparation and timely action.
As a founder of multiple businesses, Jamie believes that mindset, discipline and ambition are key drivers for success, both for his businesses and for his clients.
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