The lending landscape has gone through significant transformation in 2025 and continues to do so as we approach 2026. Economic uncertainty, evolving borrower behaviour, technological advancements, and regulatory changes are shaping the strategies of both lenders and borrowers.
Following a round table event in London on the 12th November with 25 industry professionals from the lending, advisory and professional services markets, this report highlights key trends, challenges, and opportunities that came out of the discussions.
1. Lending demand outlook for 2025
The consensus among lenders is that the first quarter of 2026 is expected to be challenging, with particular stress in sectors such as hospitality and food and drink. While the US market shows promise, it is anticipated that Europe will experience a contraction in Q1, prompting some lenders to shift focus to more robust regions. Niche lenders, especially those in invoice finance, expect continued growth, driven by both stressed and expanding businesses. The economy is increasing vigilance around fraud, and alternative finance is projected to play a larger role.
2. Borrower behaviour and challenges
Borrowers are increasingly turning to short-term, high-interest lending to address immediate cash flow needs. This approach often leads to refinancing challenges and a cycle of borrowing that can be difficult for businesses to escape or responsible lenders to be able to support. The drive for quick access to funds sometimes overshadows considerations of long-term cost and long-term stability. Economic safety and income security understandably influences borrowing and spending behaviour; however, there is growing concern about a lack of detailed planning among some business owners on how borrowings will play a part in long term business improvements and stability.
A recurring theme is the lack of financial expertise among company directors, particularly those who have not experienced previous economic downturns. There is a call for improved financial education and training for business leaders to help them make more informed borrowing decisions.
3. Growth opportunities
Opportunities for lender business are seen in the SME sector, particularly for businesses seeking funding outside traditional channels. Tax relief schemes and investor incentives continue to attract interest, and there is optimism for increased activity once the market recalibrates to new norms. The property lending market, especially in buy-to-let and development finance, is experiencing a shift, with longer-term plays becoming more common. Some lenders are seeing record volumes, with business owners leveraging personal assets to support their companies.
Despite the optimism, there is a need for caution. Opportunistic behaviour is on the rise, and lenders are enhancing their due diligence processes to mitigate the continued risks such as fraud. The importance of relationship-based lending and prudent decision-making was emphasised.
4. Interest rates and market conditions
Economic uncertainty continues to influence. Affordability and availability of credit are not always aligned, and stress testing is becoming more rigorous. While insolvency rates are slightly lower than last year, the underlying health of businesses remains a concern, with many entities existing as shells by the time insolvency proceedings begin.
A “soft patch” is expected in the near term, with lenders focusing on cost management before pursuing new investment opportunities. Nonetheless, entrepreneurial activity persists, and certain business models continue to attract funding.
5. Technology and competitiveness
The adoption of technology and data analytics is widespread, with many lenders leveraging automation for onboarding, payment processing, and administrative tasks. However, the use of artificial intelligence (AI) in underwriting remains limited, primarily due to the complexity of cases and concerns around trust and regulation. Some organisations have developed in-house tools for low-value, high-volume lending, while others maintain human oversight for larger deals.
AI is making significant inroads in areas such as collections, fraud detection, and customer service, with chatbots and voice agents becoming increasingly sophisticated. The accountancy sector is also seeing substantial investment in AI, which is expected to influence broader financial services in the future. Despite these advancements, there are concerns about the lack of regulation and the potential for misuse, underscoring the need for responsible innovation.
6. Key threats to the lending market
The primary threats identified for the coming year include:
- Indecisiveness and lack of confidence: Economic uncertainty is leading to delayed decision-making and reduced confidence among both lenders and borrowers.
- Interest rate volatility: Fluctuations in rates and government policy are impacting market psychology and lending activity.
- External risks: Cybersecurity threats, regulatory changes, and geopolitical events pose significant risks to the stability of the lending market.
- Opportunistic behaviour and fraud: Increased vigilance is required to identify and mitigate fraudulent activities and opportunistic lending practices.
- Sector-specific challenges: Changes in government policy will have a direct impact on certain lending segments.
Conclusion
The lending and finance sector faces a complex and evolving landscape heading into 2026. While challenges continue, there are also significant opportunities for growth and innovation. Success will depend on the ability of lenders and borrowers to adapt to changing conditions, leverage technology responsibly, and maintain a focus on prudent risk management. Enhanced financial education and a collaborative approach to addressing market challenges will be essential for building a resilient and dynamic lending ecosystem.
If you would like to discuss any of the points in the report, we’d be happy to connect you with our Partner, Brendan Clarkson who chaired this event or to a team delivering a specific service you require. We have offices nationwide and by contacting us on 0203 995 6380, or emailing support@opusllp.com, we can direct your enquiry accordingly.
If you would like to read our previous Round Table reports, click here.