Small businesses in some of Britain’s most disadvantaged areas are set to benefit from £1 billion in loans, thanks to a government-backed scheme for community finance organisations.
The British Business Bank (BBB) has launched a £150 million, two-year plan to strengthen community development finance institutions (CDFIs), which lend to businesses denied by the big banks. The program is expected to increase CDFI lending from £102 million a year to £500 million a year by 2029, with Responsible Finance estimating the total impact to reach £1 billion as funds are recycled through loan repayments .
“This is a huge step forward,” said Theodora Hadjimichael, chief executive of Responsible Finance, which represents 50 CDFIs across the UK. “We used to be constrained by limited funds, but now we are being recognized for the good we do.”
CDFIs focus on supporting viable businesses that are able to repay their loans but struggle to find funding elsewhere. Last year, 99% of CDFI borrowers were rejected by other lenders, yet 89% of loans were fully repaid, demonstrating the effectiveness of the model.
The program has also attracted interest from the private sector, hoping to raise an additional $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 improve their systems and improve efficiency.
Gareth Thomas, the minister for small business, praised the initiative: “The local knowledge of CDFIs enables them to lend effectively where banks cannot. Access to finance is a key barrier for small businesses, and this is a major step towards addressing that challenge.”
Another beneficiary is Hyde Accessible Transport in Manchester, which received a £125,000 loan from the Business Enterprise Fund, CDFI, after being turned down by mainstream banks. Founder Shaun Delaney used the funds to expand operations, triple profits and expand to 228 employees and contractors, most of whom are local.
The program not only provides financial resources to small businesses but also strengthens the local economy by creating jobs and encouraging growth in underserved areas, reinforcing the important role that CDFIs play in the British financial system.
