Small Businesses in Disadvantaged Areas to Benefit from £1 Billion Lending Boost

Small businesses in some of Britain’s most disadvantaged areas are set to receive a significant funding boost through a new government-backed initiative aimed at increasing access to finance for firms often overlooked by mainstream banks.

The British Business Bank (BBB) has launched a £150 million, two-year scheme to support community development finance institutions (CDFIs), which specialize in lending to businesses that are rejected by traditional lenders. The initiative is expected to raise CDFI lending from £102 million annually to £500 million by 2029. Responsible Finance, which represents 50 CDFIs across the UK, anticipates that the initiative will have a total impact of £1 billion as funds are recycled through loan repayments.

“This is a huge step forward,” said Theodora Hadjimichael, chief executive of Responsible Finance. “We’ve often been constrained by limited capital, but now we’ve been recognised for the good that we do.”

CDFIs focus on supporting viable businesses that can repay loans but face difficulties securing funding from larger banks. Last year, 99% of CDFI borrowers had been turned down by other lenders, but 89% of loans were repaid in full, demonstrating the effectiveness of the model.

The government’s initiative has already attracted interest from the private sector, with hopes of raising an additional £100 million annually. Lloyds Bank recently partnered with Big Society Capital to invest £62 million into CDFIs, while JP Morgan Chase has committed £4 million to help community lenders modernize their systems and enhance operational efficiency.

Small Business Minister Gareth Thomas praised the scheme, emphasizing the importance of local knowledge in CDFIs. “CDFIs’ local know-how enables them to lend effectively when traditional banks cannot. Access to finance is a key barrier for small businesses, and this is a big step towards addressing that challenge,” he said.

One company already benefiting from this initiative is Hyde Accessible Transport in Manchester. After being turned down by mainstream banks, the company secured a £125,000 loan from the Business Enterprise Fund, a CDFI. Founder Shaun Delaney used the funds to expand operations, tripling turnover and increasing staff to 228 employees and contractors, many of whom are from the local area.

The new programme not only provides vital financial support to small businesses but also strengthens local economies by creating jobs and fostering growth in underserved regions, highlighting the crucial role CDFIs play in the UK’s financial landscape.