Small businesses in some of Britain’s most deprived areas are expected to benefit from £1bn in loans, thanks to a government-backed initiative by community finance organisations.
The British Business Bank (BBB) has launched a £150 million, two-year plan to support community development finance institutions (CDFIs), which lend to businesses turned away 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 up to £1 billion as money is recycled through loan repayments.
“This is a huge step forward,” said Theodora Hadjimichael, chief executive of Responsible Finance, which represents 50 local development finance institutions across the UK. “We were often constrained by limited capital, but now we are recognized for the good we do.”
CDFIs focus on supporting viable businesses that can repay loans but struggle to secure financing elsewhere. Last year, 99% of crowdfunding 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 private sector interest, with the hope of raising an additional £100m a year. Lloyds Bank recently partnered with Big Society Capital to invest £62 million in community development finance institutions, and JP Morgan Chase has committed £4 million to help community lenders upgrade their systems and improve efficiency.
Gareth Thomas, Minister for Small Business, praised the initiative, saying: “MFIs’ local knowledge enables them to effectively provide loans where traditional banks cannot. Access to finance is a major barrier for small businesses, and this is a big step towards tackling This challenge.
One beneficiary is Manchester company Hyde Accessible Transport, which secured a £125,000 loan from the Business Enterprise Fund, a CDFI, after it was rejected by major banks. Founder Sean Delaney used the funds to expand operations, triple employee turnover and increase headcount to 228 employees and contractors, most of whom are local.
Not only does the program provide financial lifelines to small businesses, it also strengthens local economies by creating jobs and promoting growth in deprived areas, enhancing the vital role CDFIs play in Britain’s financial ecosystem.
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