The government has convened a new taskforce to unlock up to £1bn in additional lending for small businesses, pressing Britain’s major banks to commit fresh capital to alternative community lenders.
Ministers are seeking “concrete commitments” over the next five years to expand funding for the community development financial institution (CDFI) sector, not-for-profit lenders that support businesses unable to secure loans from mainstream banks.
The initiative follows a review which found that many small firms are being pushed towards high-cost borrowing because of rising rejection rates, regulatory complexity and broker practices. Borrowing costs for some companies were described as “prohibitively high”.
CDFIs lent £141m to around 5,000 businesses in 2024, according to Responsible Finance. Of that, £82m went to roughly 1,000 small and micro businesses, while £59m supported around 4,000 start-ups.
The taskforce aims to scale lending to small firms from £82m to £500m over five years, contributing to an overall £1bn boost in available finance.
Blair McDougall, the small business minister (pictured), said the initiative brings together “local knowledge and relationships” with financial backing from the British Business Bank and major lenders.
The group will be chaired by Bob Annibale, chair of Big Issue Changing Lives and Grameen America. He said one of the first priorities would be encouraging banks to redirect rejected applicants to CDFIs rather than leaving them without options.
Loan rejection rates from high street banks have climbed to around 40 per cent, according to the British Business Bank, compared with 5–10 per cent in the 1990s.
Several lenders have already committed funds. In 2024, Lloyds Banking Group announced a £43m investment in three CDFIs via its Community Investment Enterprise Fund, while JP Morgan provided £4m to strengthen CDFI operational capacity.
Industry figures say that alongside fresh capital, CDFIs will need investment in staffing and technology to manage higher volumes of lending.
The move reflects Labour’s pledge to improve access to finance for small firms rejected by mainstream banks and comes as ministers seek to stimulate growth among smaller enterprises facing elevated borrowing costs.
