The initiative is aimed primarily at community development financial institutions (CDFIs), and is expected to provide a significant boost to the sector, supporting up to £150 million of lending over the next two years.

CDFIs are small, regional, social impact sector lenders that provide debt finance and support to underserved smaller businesses that can find it difficult to access finance from mainstream lenders. One of the key objectives of the programme is to help develop the sector as a whole so that many more such businesses can access the finance they need.

CDFIs have strong, local knowledge of the smaller businesses they support and the communities they reside in. As such, they are well placed to provide the right finance which can unlock the potential in these communities.

The British Business Bank’s CEF programme will be rolled out in two phases. In the first phase, the Department for Business and Trade will provide 100% of the programme’s funding via the bank, which will enable CDFIs to make more finance available to smaller businesses.

In the second phase, the bank will source additional funding from private sector investors, leveraging the government-backed funding to increase the amount of wholesale finance available under the programme.

CDFIs are known as not for profit lenders as they do not pay dividends and their profits are reinvested into their business to increase access to finance for smaller businesses. Their overall goal is to provide fair and affordable finance and create social value for the communities they serve.

The social impact sector is particularly important in serving smaller businesses that are led by underrepresented groups, such as females or people from an ethnic minority group. In 2023, for example, 24% of loans from the sector went to ethnic minority-led businesses, which make up just 6% of UK smaller businesses.

Similarly, 41% of the sector’s smaller business lending went to female-led businesses, which make up around 17% of UK smaller businesses.

In total, the social impact sector lent £102m to 4,546 smaller business across the UK in 2023. There is a strong regional focus, with 98% of businesses supported being based outside of London. 99% of the lending the social impact sector provides is to smaller businesses which have been declined by a mainstream lender, with 60% of businesses supported based in the UK’s 35% most disadvantaged areas.

Louis Taylor, British Business Bank CEO, said: “This is an important moment for the social impact lending market and one we’re excited about at the bank.

“The Community ENABLE Funding programme is designed to unlock finance across the UK’s Nations and regions for those small businesses who need it but have struggled to access it historically. We hope this can empower local CDFIs to support the communities they’re a part of and generate the desired growth the country needs.”

Gareth Thomas MP, parliamentary under-secretary of state at the Department for Business and Trade, said: “Access to finance is one of the key barriers to growth for small businesses, and this announcement is a big step towards addressing some of those challenges.

“CDFIs have that crucial local know-how, the ability to reach businesses that have fallen through the net, and this programme will support many firms to thrive and grow.”

Theodora Hadjimichael, CEO of Responsible Finance, said: “Many great businesses struggle to get the funding they need, so CDFIs are a lifeline.

“They have a long history helping businesses to grow and create jobs but have not always had enough funding themselves to meet demand. This game-changing investment will enable CDFIs to expand and support more small firms.

“We thank the government and our valued long-term partner the British Business Bank for backing businesses in communities across Britain by backing CDFIs.”

Jim Higginbotham, CEO of NACFB, said: “The NACFB is pleased to support the launch of the Community ENABLE Funding initiative, recognising the critical role that CDFIs have come to play in the UK’s funding ecosystem.

“Having observed the growth of the social impact sector, our membership understands how they provide essential support to small businesses that may face challenges accessing finance elsewhere.

“Our growing commercial broker network values the CDFIs’ approach of taking the time to really understand a business, its needs, ambitions, and the people behind it. This new scheme is a welcome initiative that will further reduce barriers to finance and ensure continued support for underserved businesses across the UK.”

Martin McTague, national chair of the Federation of Small Businesses (FSB) said: “The Community ENABLE Funding programme will support CDFIs to become a larger part of the funding landscape for small businesses, especially those in underserved communities, and those led by women and people from ethnic minorities.

“By getting to know the communities and areas they are based in, CDFIs can build strong networks of relationships and deep wells of knowledge, allowing them to get funds to businesses who would most likely be turned down by other finance providers.

“The CEF programme’s creation is a significant moment for small firms, and will eventually help thousands of entrepreneurs with big dreams to get the funds they need to invest and grow.”