Small businesses in some of Britain’s most disadvantaged areas are set to receive a significant financial boost through a government-backed initiative aimed at providing £1 billion in lending. This initiative, led by the British Business Bank (BBB), involves a £150 million, two-year scheme to support community development finance institutions (CDFIs) that cater to businesses typically turned down by traditional banks. The goal is to significantly increase CDFI lending from £102 million annually to £500 million by 2029, impacting overall funding to reach £1 billion as repayments are recycled into new loans.
The chief executive of Responsible Finance, representing 50 CDFIs in the UK, praised the initiative as a major advancement for the sector, stating that the recognition of their work will now be supported by increased capital. CDFIs focus on assisting viable businesses that struggle to secure funding elsewhere, with 99% of last year’s borrowers having been rejected by mainstream lenders, yet demonstrating an impressive 89% repayment rate, highlighting the importance and effectiveness of the CDFI model.
Private sector interest has also been drawn to this initiative, with the potential to raise an additional £100 million annually through partnerships like Lloyds Bank’s collaboration with Big Society Capital and JP Morgan Chase’s commitment to support community lenders in upgrading systems. The small business minister, Gareth Thomas, emphasized the significance of CDFIs in addressing the critical challenge of access to finance for small businesses, underlining the role of local expertise in lending effectively where traditional banks may not.
One example of the positive impact of this lending initiative is seen with Hyde Accessible Transport in Manchester, which secured a £125,000 loan from a CDFI after mainstream banks declined them. The founder utilized the funds to expand operations, leading to a significant increase in turnover and local job creation. This program not only provides financial support to small firms but also contributes to job creation and economic growth in underserved areas, highlighting the essential role CDFIs play in bolstering Britain’s financial landscape.