New research from FTSE 250 lender Paragon Bank shows that UK SMEs are rapidly moving to adopt artificial intelligence, with half of businesses (50%) saying they are likely to replace some staff roles with AI or other technology‑based solutions.
One in four (24%) SME leaders have no plans to reduce headcount through AI, while the remainder remain uncertain about their approach.
According to the Paragon survey of 1,000 SME leaders and decision makers, the picture varies significantly by sector. SMEs in industries most likely to reduce headcount as a result of AI adoption include finance and insurance (62%), information and communication (68%) and manufacturing (53%). In contrast, sectors least inclined to replace staff with AI include transportation and storage (55%), arts and entertainment (47%), health and social care (42%) and education (40%).
The study found AI is already being embedded across the SME landscape, with 89% of SMEs having adopted some form of the technology within their business. SMEs are using AI for data analytics and decision‑making (36%), operations and process automation (33%), customer engagement (32%), marketing (28%) and finance and risk management (27%).
Where AI is in place, businesses report measurable gains, particularly improved productivity, better data management and reductions in operating costs.
The growing adoption of AI comes as SMEs seek new ways to maintain competitiveness amid a challenging operating environment. While traditional pressures such as rising operational costs, employment costs and access to finance continue to feature prominently, many SMEs are responding with a decisive shift toward technology.
Around 30% are adopting new technologies or automation as a direct response to cost pressures, while others are exploring new markets, seeking alternative routes to finance or bringing supply chains closer to home.
Among those implementing AI, 36% report increased productivity, 31% better data management and 30% cost reductions. Other benefits include improved customer service (27%), quicker innovation (27%) and smarter procurement and inventory management (24%).
Paragon Bank’s research reinforces the increasingly central role that AI will play in strengthening resilience and productivity within the SME sector. As adoption accelerates, Paragon remains committed to providing the finance British businesses need to embrace innovation and drive the next decade of UK economic growth.
John Phillipou, Managing Director of SME Lending at Paragon Bank and Chair of the Finance & Leasing Association, said: “Working with more than 16,000 UK SMEs gives Paragon a clear view of the resilience and adaptability that define Britain’s small and medium‑sized businesses. That spirit is evident in how quickly AI is moving from concept to practical application across the sector.
“What stands out from this research is the pace at which SMEs are embracing AI. It’s no longer seen as a ‘future technology’, but a practical, productivity‑enhancing tool that is already helping firms cut costs, make smarter decisions and serve customers more effectively. Doing so amid ongoing cost and labour pressures is testament to their agility and responsiveness.”
He added: “As AI becomes more embedded in business activity, Paragon remains focused on providing the financial support businesses need to invest in the technologies that can drive the next phase of economic growth.”
The findings come as the FTSE 250 lender marks 10 years of its SME Lending division, during which time it has quadrupled its loan book and delivered more than £3.6 billion in total lending to support over 16,000 UK SMEs. The milestone underscores Paragon’s long-term commitment to helping more than 16,000 businesses invest, scale and grow — including facilitating the types of digital and technological investment highlighted in the research.
