Small businesses in some of Britain’s most disadvantaged areas are poised to benefit from £1 billion in lending, thanks to a government-backed initiative by community-based finance organisations.

The British Business Bank (BBB) has launched a £150 million, two-year scheme to bolster community development finance institutions (CDFIs), which lend to businesses turned down by mainstream banks. The initiative is expected to increase CDFI lending from £102 million a year to £500 million annually 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’ve often been constrained by limited capital, but now we’ve been recognised for the good that we do.”

CDFIs focus on supporting viable businesses that can repay loans but struggle to secure funding elsewhere. Last year, 99% of CDFI borrowers had been rejected by other lenders, yet 89% of loans were repaid in full, demonstrating the model’s effectiveness.

The scheme has also attracted private sector interest, with hopes of raising an additional £100 million annually. Lloyds Bank recently partnered with Big Society Capital to invest £62 million in CDFIs, and JP Morgan Chase has committed £4 million to help community lenders upgrade their systems and improve efficiency.

Gareth Thomas, the small business minister, hailed the initiative: “CDFIs’ local know-how enables them to lend effectively when traditional banks cannot. Access to finance is a key barrier for small businesses, and this is a big step towards addressing that challenge.”

One beneficiary is Hyde Accessible Transport in Manchester, which secured a £125,000 loan from the Business Enterprise Fund, a CDFI, after being declined by mainstream banks. Founder Shaun Delaney used the funds to expand operations, tripling turnover and increasing staff to 228 employees and contractors, most of whom are local.

The programme not only provides financial lifelines to small firms but also strengthens local economies by creating jobs and fostering growth in underserved areas, reinforcing the vital role CDFIs play in Britain’s financial ecosystem.

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