Small business minister: we will unlock £1bn of local lending

Community Development Finance gives small local business the funding and confidence they need to grow. That’s why this Labour government is launching a taskforce to expand the sector, say Blair McDougall and Bob Annibale

The UK has long been home to an entrepreneurial spirit of creativity and innovation, from household names to neighbourhood heroes.

Despite various headwinds in recent years, we remain one of the top start-up destinations in Western Europe, with over 300,000 new companies established every year. 

However, as every business owner knows, it’s one thing to start a new company. Sustaining and developing it is another. 

The right finance at the right time can make all the difference. Yet too many small firms can’t access the finance they need to take their bright ideas and turn them into thriving businesses. So today we are announcing a new plan to get an additional £1bn of lending to British small and medium-sized enterprises over the next five years.

Most businesses need to invest in themselves – in products, premises and staff. They know they need to be bold, but they also need confidence that a calculated risk today will unlock tomorrow’s success.

We have one of the lowest levels of small and medium-sized Enterprise borrowing in the G7. Whether this is because small firms can’t meet lenders’ criteria, or due to risk aversion, the economic impact is significant, and we need to tackle this issue head on.

That’s why, as part of the Plan for Small Business, the department for business and trade is working with large banks and small community lenders, both directly and through the British Business Bank, to give more small businesses the confidence and funding they need to grow.

This is about harnessing the deep local knowledge and relationships which Community Development Finance Institutions (CDFIs) bring to small business finance.

CDFIs are fair and flexible lenders which offer support and mentoring – not just money – to talented entrepreneurs and their businesses. It’s the kind of relationship between lender and business that was common in decades past.

Thriving businesses

They have enabled thousands of UK businesses to thrive, especially those in underserved communities. Some 95 per cent of the businesses CDFIs lend to have been unable to get finance elsewhere, yet the vast majority go on to repay their loans and grow their businesses, unlocking entrepreneurial opportunity, job creation and business growth.

Just ask Holly, founder of the Bare Beauty Academy in Eastbourne. Her salon business started out as a one-woman band in the spare room of her family home. But Holly had big dreams. She wanted to create an academy that would offer accredited training courses for aspiring beauticians.

Holly secured a £25,000 business loan to expand Bare Beauty Academy in Eastbourne, now a major local employer

Armed with a £25,000 business loan from her local CDFI, Let’s Do Business Finance, through the British Business Bank’s Community ENABLE Funding (CEF) programme, she secured a lease on a new salon and invested in high-quality training and equipment. Her business has become both a major local employer and training provider.

We want to get more businesses like Holly’s growing – and growing fast. We want to see the CDFI sector playing a much bigger role in lending to smaller firms – just as it does in the United States where it accounts for hundreds of billions of dollars in business capital. Here in the UK, demand has long outstripped the capital CDFIs have available to lend.

That is why today we are announcing a new community finance roadmap – a plan, with clear, practical steps to grow CDFI lending.

Alongside this, we are appointing a UK Community Finance Partnership Taskforce. Its mission will be to scale the sector through partnerships with banks, securing concrete commitments for growth.

The taskforce, brought together by government, includes leading financial institutions like NatWest, Barclays, Mastercard, JPMorganChase, Lloyds Bank, as well as Responsible Finance, the British Business Bank and the respected West Midlands based CDFI, BCRS. 

It will create the long-term partnerships we need to move the dial by expanding CDFIs’ ability to serve Britain’s entrepreneurs.

It combines place-based knowledge, local relationships and community finance’s ability to lend to small businesses, with capital and support from banks and the British Business Bank.

Some banks, and the British Business Bank, are already backing CDFIs, understanding that their deep local market knowledge is a major asset. This is a formula that already works well in the UK and is proven at scale in the US.

The prize here is enormous. And it is within our grasp.

Through this new partnership we can unlock unprecedented levels of capital for our start-ups and scale-ups, giving rise to a new generation of entrepreneurs like Holly.

Blair McDougall MP is minister for small business and Economic Transformation

Bob Annibale is chair of UK Community Finance Partnership Taskforce