Small businesses in some of Britain’s most deprived areas are set to benefit from £1 billion in loans, thanks to a government-backed initiative from community-based financial organisations.
The British Business Bank (BBB) has launched a two-year, £150m plan to strengthen community development finance institutions (CDFIs), which provide loans to businesses rejected by mainstream banks. The initiative is expected to increase CDFI lending from £102 million per year to £500 million per year by 2029, with Responsible Finance estimating the total impact at £1 billion as the funds are recycled through loan repayments.
“This is a huge step forward,” said Theodora Hadjimichael, CEO of Responsible Finance, which represents 50 CDFIs in the UK. “We have often been limited by limited capital, but now we are being recognized for the good we do.”
CDFIs focus on supporting viable businesses that can repay loans but have difficulty obtaining financing elsewhere. Last year, 99% of CDFI borrowers were rejected by other lenders, yet 89% of loans were repaid in full, demonstrating the effectiveness of the model.
The scheme has also attracted interest from the private sector, with hopes of raising a further £100 million annually. Lloyds Bank recently partnered with Big Society Capital to invest £62 million in CDFIs, and JP Morgan Chase committed £4 million to help community lenders upgrade their systems and improve efficiency.
Gareth Thomas, the Minister for Small Business, welcomed the initiative: “CDFIs’ local knowledge allows them to lend effectively where traditional banks cannot. Access to financing is a major barrier for small businesses, and this is a big step toward addressing that challenge.”
One beneficiary is Hyde Accessible Transport in Manchester, which received a £125,000 loan from the Business Enterprise Fund, a CDFI, after being rejected by mainstream banks. Founder Shaun Delaney used the money to expand operations, tripling revenue and increasing its workforce to 228 employees and contractors, most of whom are local.
The program not only provides financial lifelines to small businesses, but also strengthens local economies by creating jobs and promoting growth in underserved areas, reinforcing the critical role CDFIs play in the UK financial ecosystem.