What is considered an SME in the UK?
In the UK, a Small and Medium-sized Enterprise (SME) is formally defined under the Companies Act 2006 and EU-derived thresholds. A small company has no more than 50 employees and either turnover below £10.2 million or a balance sheet below £5.1 million. A medium company has no more than 250 employees and either turnover below £36 million or balance sheet below £18 million. Businesses below these thresholds qualify as SMEs for regulatory and support purposes.
Why does the SME definition matter for financial services?
The SME definition determines eligibility for various financial products, government support schemes, and regulatory protections. For example, SMEs may access BBLS (Bounce Back Loan Scheme), EIS/SEIS investment schemes, and specific FCA consumer-facing protections that do not apply to larger corporates. Lenders use the SME definition to categorise lending products and risk assessment approaches, including those based on open banking affordability data.
How does open banking benefit UK SMEs?
Open banking has significantly improved SME access to financial services. Lenders can assess real business cashflow via open banking connections to business current accounts — making lending decisions faster and more accurate than relying solely on financial accounts, which may be months old. Accounting integration via open banking (Xero, QuickBooks) simplifies bookkeeping, VAT filing, and Making Tax Digital compliance. Business banking platforms like Starling and Tide are built on open banking principles.
Open Banking in Practice: The FCA recognises the importance of SME access to finance and has specifically encouraged the use of open banking in SME lending. The JROC’s 2023 roadmap includes SME finance as a priority use case for expanded open banking. Over 5.5 million SMEs operate in the UK, representing 99.9% of all businesses. Read our guide to open banking for small businesses on openfuture.world.
FAQ
Is a sole trader considered an SME?
Yes — sole traders are typically classified as micro-businesses, which is a subset of SMEs; they qualify for SME-specific financial products and government schemes.
What qualifies as a small business in the UK?
A small business in the UK has fewer than 50 employees and turnover or balance sheet below the thresholds in the Companies Act 2006 — most UK businesses qualify.
How does open banking help self-employed people with lending?
Open banking allows lenders to verify irregular self-employed income directly from bank transactions, rather than relying on accounts that may be a year old.