UK banks face £30m call to fund firms mainstream lenders turn away

Barclays, HSBC and Santander have been challenged to invest a combined £30m in community lenders that provide finance to small businesses unable to secure conventional bank credit.

Gareth Thomas, a former business minister and MP for Harrow West, has asked each bank to commit £10m to UK community development finance institutions, or CDFIs. His letters were sent on 22 July but became public on Monday, creating fresh pressure on large banks to provide wholesale capital to specialist local lenders.

CDFIs typically make relationship-based loans to viable businesses that fall outside mainstream banks’ credit criteria because of their size, limited trading history, location or lack of conventional security. Their role has grown as smaller companies have sought alternatives to expensive short-term borrowing.

Responsible Finance said UK CDFIs lent £181.4m to 6,869 start-ups and small businesses during 2025, the sector’s fourth consecutive year of record lending. Separate data from the organisation indicate that 88% of businesses receiving CDFI finance had previously been declined by another lender.

Thomas argues that more bank capital would allow CDFIs to increase their lending in disadvantaged and underserved areas while developing businesses that could later qualify for mainstream finance. The proposed £30m would be funding for the lenders rather than direct grants to individual companies.

The appeal follows commitments to the UK community-finance sector from several other institutions. Lloyds has previously committed £43m, while JPMorgan Chase announced £10m of support in July, including £6m of new funding. BNY has also indicated that it will provide financial support.

Barclays said it was developing skills-sharing and capacity-building work with CDFIs and considering other forms of support. HSBC highlighted its existing SME lending and participation in the government’s community-finance task force, while Santander said it would continue engaging with government and the sector. None of the three had committed the requested £10m at the time of publication.

The commercial issue is whether banks view CDFIs principally as charitable or policy partners, or as a distribution channel capable of extending responsible credit into markets that conventional underwriting struggles to serve. Additional wholesale funding could increase lending capacity, but its impact would depend on pricing, maturity and the amount of risk retained by the community lenders.