The government has set up a new taskforce to release up to £1bn of additional loans for small businesses and is urging major UK banks to provide fresh capital to alternative lenders in the community.
Ministers are seeking “concrete commitments” over the next five years to expand funding for the Community Development Financial Institutions (CDFI) sector. These are nonprofit lenders that support businesses that cannot obtain loans from mainstream banks.
The initiative follows a review that found many small businesses are being pushed into costly borrowing due to rising denial rates, regulatory complexity and brokerage practices. Some companies’ borrowing costs have been described as “prohibitively high”.
According to Responsible Finance, CDFIs provided loans worth £141 million to around 5,000 companies in 2024. Of this, £82 million went to around 1,000 small and micro businesses, while £59 million supported around 4,000 start-ups.
The taskforce aims to increase lending to small businesses from £82m to £500m over five years, helping to increase available finance by a total of £1bn.
Small Business Minister Blair McDougall (pictured) said the initiative brings together “local knowledge and relationships” with financial support from the British Business Bank and major lenders.
The group will be chaired by Bob Annibale, chairman of Big Issue Changing Lives and Grameen America. He said one of the first priorities will be to encourage banks to direct rejected applicants to CDFIs rather than leaving them without options.
According to the British Business Bank, major banks’ loan rejection rates have risen to around 40 percent, compared with 5 to 10 percent in the 1990s.
Several lenders have already committed funds. In 2024, Lloyds Banking Group announced a £43m investment in three CDFIs through its Community Investment Enterprise Fund, while JP Morgan committed £4m to strengthen CDFI operational capacity.
Industry metrics indicate that in addition to fresh capital, CDFIs need investments in staff and technology to manage higher loan volumes.
The move reflects Labor’s pledge to improve access to finance for small businesses rejected by mainstream banks, and comes as ministers seek to boost growth for smaller businesses facing increased borrowing costs.
