The government has announced a major package of reforms aimed at improving access to finance for small and medium-sized businesses, including a significant expansion of the British Business Bank’s Growth Guarantee Scheme.
Ahead of the Chancellor’s Mansion House speech, Rachel Reeves confirmed measures designed to increase lending to smaller businesses, support innovation and strengthen community finance, with ministers describing the package as the most significant reform of SME finance in years.
At the centre of the announcement is a major expansion of the British Business Bank’s Growth Guarantee Scheme, which provides lenders with a 70% government guarantee on commercial loans of up to £2 million.
The scheme, launched in 2022, has supported more than £3.7 billion of lending to UK SMEs, including £2.5 billion provided to businesses outside London and the South East.
Under the reforms, the scheme will facilitate an additional £2 billion of SME lending each year by 2028/29, taking total annual lending supported through the programme to £3.35 billion, compared with the current £1.35 billion.
The maximum loan term for facilities of up to £1.1 million will increase from six years to 10 years, while the turnover threshold for eligible businesses will rise from £45 million to £54 million.
The British Business Bank estimates the changes will increase the number of businesses supported from around 8,000 to 20,000 each year by 2028/29.
The government estimates there is currently an annual funding gap of between £1.6 billion and £4.1 billion for UK SMEs, with improving access to finance viewed as an important driver of investment, productivity and economic growth.
Rachel Reeves, chancellor of the exchequer, says: “Our plan for the economy has put Britain on a stronger footing – restoring stability, getting investment flowing, and delivering reform.
“We know that small businesses are the backbone of this economy and growth in all our regions, and for too long they have heard ‘no’ when trying to raise the funds they need to grow and create jobs across the UK.
“When they succeed, we all succeed, and today’s major reforms are the most significant step in years to unleash their potential.”
Peter Kyle, business secretary, adds: “Today we’re putting our weight behind Britain’s entrepreneurs and innovators, unlocking billions in additional lending to help thousands more small businesses start, scale and succeed because access to finance should never be the barrier between a good idea becoming a great British business.
“Today’s expansion of the scheme’s funding is the most significant step in years to unlock finance for Britain’s small businesses with the further changes to the terms of the scheme improving the viability of guaranteed lending for firms who need longer term loans.”
SUPPORT FOR INNOVATION AND COMMUNITY FINANCE
Alongside the Growth Guarantee Scheme expansion, the British Business Bank has allocated £500 million of financial capacity through its ENABLE Guarantee programme to increase lending to intellectual property-rich SMEs and scale-up businesses.
The funding is intended to improve access to finance for innovative companies in sectors including life sciences and the creative industries, where traditional asset-backed lending can be more difficult to secure.
The government also confirmed further backing for Community Development Finance Institutions (CDFIs), which support businesses unable to access mainstream lending.
Supporters of the Community Finance Taskforce, including JPMorganChase, have committed £10 million of philanthropic funding, alongside financial backing from BNY, to strengthen the operational capacity of community lenders.
A second phase of the British Business Bank’s Community ENABLE Funding programme will launch later this year, with ambitions to expand the programme to at least £500 million over time.
The government said these initiatives aim collectively to unlock an additional £1 billion of SME lending over the next five years.
EXPORTS AND WIDER REFORMS
A new portfolio guarantee scheme will also be introduced jointly by UK Export Finance and the British Business Bank from spring next year to improve access to finance for SMEs looking to expand into overseas markets.
Other measures announced include the next phase of the Business Growth Service, development of a financial readiness programme for SMEs, plans to consult on Open Finance with an initial focus on SME lending in 2027, proposals to remove legislative barriers preventing building societies from expanding SME lending, and reforms to banking ring-fencing intended to increase finance available to scale-up businesses.
Paul Thwaite, CEO NatWest Group, says: “We welcome the changes announced today. As the UK’s biggest bank for business, this will allow us to deepen our support for firms, lending in the region of £1bn through the Government Guarantee Scheme over the next three years.”
Amanda Murphy, CEO business and commercial banking, Lloyds Banking Group, added: “Lloyds Banking Group welcomes the planned expansion of the Growth Guarantee Scheme.
“With these changes, the scheme could enable us to provide up to £1 billion of lending by 2029, helping to support more businesses that may not otherwise have been able to access finance.
“We have already committed to provide £35 billion of new finance to businesses across the UK this year, including £9.5 billion for SMEs, helping businesses across the UK invest for the future, create jobs and drive growth in their local economies.”
