Paragon Bank's SME Lending Reaches £90 Million, Outperforming Mortgages

For the nine months ending June 30, 2026, Paragon Banking Group reported an 8.2% increase year-on-year in commercial lending, amounting to £940 million. In contrast, mortgage advances rose only 1.2% to £1.12 billion. The group attributed the softer performance in buy-to-let demand to fluctuations in interest rates and announced the establishment of a team focused on agricultural clients within its SME lending sector during the quarter.

With the GGS, Paragon has supported over 300 SMEs across various sectors, such as manufacturing, transport, construction, engineering, and agriculture. The lending under the GGS has been growing steadily since Paragon became an accredited lender, prompting the British Business Bank to provide additional allocations in recognition of the demand.

Among the GGS borrowers is an aircraft manufacturer in the North West that secured a £100,000 loan for growth, which includes staff training and expansion into a new site. Additionally, a York community center received £67,000 for a wastewater treatment system, while a North East coffee shop utilized £25,000 from the GGS to renovate its fourth location.

In the broader context of SME lending, specialist lenders like Paragon are part of a competitive landscape. According to the British Business Bank, challenger and specialist banks accounted for 60% of gross SME lending in 2025, a significant increase from 39% in 2012. Total gross SME lending rose 9% to £68 billion during the same period.

Shawbrook, another key player in the sector, reported an expansion of its SME loan book by approximately £400 million in the first half of 2026, driven in part by its acquisition of the ThinCats portfolio, resulting in a total loan book of £20.1 billion.

In July, then-Chancellor Rachel Reeves announced a £6.5 billion increase to the GGS, expected to unlock further lending opportunities over the next four years and assist approximately 33,000 businesses. This will include extending certain facility terms from six to ten years and raising eligible turnover limits from £45 million to £54 million.

The GGS, which offers a 70% government guarantee, has delivered £3.7 billion to UK businesses through 70 accredited partners, with around 70% of the facilities directed towards businesses outside of London and the South East.

Phil Hughes, deputy managing director of SME Lending at Paragon, expressed the need for ongoing support from the British Business Bank, suggesting that continued backing is essential for enhancing productivity and fulfilling the government's growth ambitions across the country.

He noted that reaching £90 million in GGS lending illustrates the scheme's value for British small businesses, asserting the role of SMEs as the cornerstone of the UK economy despite ongoing challenges in accessing finance.

Reinald de Monchy, chief banking officer at the British Business Bank, affirmed the GGS's critical importance in improving financing access for smaller enterprises across the UK.

Additionally, data from UK Finance indicated that gross SME lending from major high street banks hit a post-pandemic peak of £5.35 billion in the second quarter of 2026, although it remains about a third below the average from 2019 in real terms.

Commercial brokers participating in Atom Bank's SME Pulse survey reported that small borrowers face increasing challenges in securing deals. Bank of England data revealed a decrease in SME loans from 12% of GDP in 2011 to 6.5% in 2026.

Intermediaries, particularly members of the National Association of Commercial Finance Brokers, facilitated £33 billion of SME lending in 2025, up 25% year-on-year. The total broker-led SME market is estimated to be around £50 billion annually. The GGS eligibility criteria dictate that borrowers must earn more than 50% of their income from trading activities, with principal private residences not being acceptable as security.