Call for evidence outcome

Government response to access to finance call for evidence

Updated 4 December 2025

Background

This document is the government response to the small business access to finance call for evidence launched by the Department for Business and Trade (DBT) on 13 March 2025. The call for evidence ran for 10 weeks, closing on 22 May 2025. This period was an opportunity to interact with a range of stakeholders from business and the financial sector. We welcome the interest and engagement that this process has generated and would like to thank all those who submitted responses. 

We would like to thank stakeholders for their detailed consideration of the issues that were explored in the call for evidence. We are grateful for the thorough written responses that stakeholders provided as well as the views that they shared in roundtables.

The call for evidence sought views and evidence to help us: 

• assess how far our existing policies meet the needs of business and the lending sector in overcoming barriers to finance
• understand where we may be able to go further to create growth through our support for SMEs (small medium-sized enterprises) and the lending sector

The call for evidence focused on 4 areas: 

• barriers to the demand for debt finance
• lending market developments 
• alternative models of finance 
• the experiences of underserved entrepreneurs

While the levers held by government to address some of these challenges are limited as business finance is primarily a commercial matter, this call for evidence has helped to inform our understanding of the experiences of businesses seeking external finance and the providers operating in this finance market. Feedback received from a range of respondents has supported our understanding of the areas where government has a role in supporting small business access to finance, such as through the crucial work of the British Business Bank and the Business Growth Service.

In collecting and presenting this evidence, we aim to create a shared understanding of the issues for both businesses and the financial sector, to establish a foundation to support further thinking within industry about the needs of the real economy.

Overview of responses

The government received 96 full responses to the call for evidence.

Respondents included:

• small businesses
• business representative organisations
• trade bodies
• banks
• non-bank lenders
• social lending sector stakeholders
• business support providers
• local government

This is broken down in the following table:

Organisation type	Number of responses
Small businesses	13
Business representative organisations and sector-specific trade bodies (excluding finance)	22
Banks	8
Non-bank lenders	5
Social and responsible lending sector stakeholders	8
Wider finance sector and representative bodies	20
Commercial finance brokers	6
Business support providers	7
Local authorities and regional agencies	4
Other respondents	3

While DBT has undertaken a detailed analysis of all the responses, this document highlights the main feedback received and does not seek to provide an exhaustive commentary on every response. Not all respondents answered every question or addressed every area of the call for evidence.

Progress made since publication of the call for evidence

Since we issued the call for evidence on access to finance, the government has taken proactive steps to improve our suite of support for small businesses, including through the launch of ‘Backing your business, our plan for small and medium-sized businesses’ (‘Backing your business’). A series of actions is now underway that will address the access to finance themes raised in the call for evidence, of which a detailed summary is provided in the following chapters.

As set out in ‘section 1: barriers to the demand for finance’, the issue of financial awareness and navigating the market was widely raised as a contributing factor to the comparatively low levels of demand for finance in the UK in relation to international counterparts.

In ‘Backing your business’, we announced that the new Business Growth Service will signpost to a range of finance options. This includes provision of tailored advice through the national Business Support Service, local Growth Hubs, and access to information through its digital arm. The Help to Grow: Management programme and Business Academy will continue to provide training on financial management.

We similarly announced that we will upgrade the British Business Bank’s information service, the Finance Hub, with easier to navigate advice to improve finance readiness in SMEs and drive demand. We will also be working with the Department for Education (DfE) to identify and promote best practice in enterprise and entrepreneurial education in schools, colleges and universities in England.

As explained in ‘section 2: characteristics of the lending market’, government initiatives to increase the supply and support the flow of finance to small businesses were widely acknowledged. In ‘Backing your business’, we set out our plans to unlock access to finance through the British Business Bank. This includes increasing the British Business Bank’s capacity and capability so that it can invest across the lifecycle of firms with high potential.

At the Spending Review, the government announced the British Business Bank’s total financial capacity would rise to £25.6 billion, enabling a two-thirds increase in support for UK businesses. Over the next 5 years, we plan to expand our offer to start-ups and deliver at least 85,000 loans, increasing our annual deployment by a third. We will also extend eligibility to businesses that are up to 5 years old, to ensure existing businesses that have not built a track record can continue accessing low-interest rate finance, and increase the average loan size to recognise the rising costs of being a start-up.

We have also put the Growth Guarantee Scheme (GGS) on a longer-term footing, giving lenders the certainty they need to use the scheme strategically and help more businesses access the finance they need to grow and invest. We announced that we are continuing the ENABLE programmes and will increase the capacity of the ENABLE Guarantee Scheme by £3 billion. This will reduce the cost of finance for SMEs and help to support lenders such as banks and non-bank financial institutions to unlock more lending to SMEs. This includes providing guarantees to increase lending across different parts of the economy, including asset and lease finance.

In light of feedback on lending against intangible assets, the government is working closely with industry, financial institutions, and regulators on how best to support lending to innovative and high-growth intellectual property-rich (IP) SMEs. This autumn, a newly established cross-government working group and the Intellectual Property Office’s (IPO) industry IP Finance Advisory Group have been exploring measures to improve lending. As set out in the Entrepreneurship Prospectus published alongside the November 2025 Budget, the government has asked the British Business Bank to explore using its existing financial guarantee capacity to support IP-backed lending specifically.

As set out in the chapter on open finance, the potential of open banking and open finance to improve small business access to finance was highlighted by respondents. We will be publishing a Smart Data Strategy which will outline next steps towards the future of open banking and open finance in the context of a Smart Data Economy. We also welcome the Financial Conduct Authority’s (FCA) SME Finance TechSprint, running from November 2025 to February 2026, which is designed to support the future regulatory framework for open finance.

In response to feedback on the potential impact of personal guarantees (PGs) on demand for finance, we have already begun work to introduce a mandatory code of conduct for GGS accredited lenders to ensure communications about PGs are clear and their use is fair and transparent, noting that primary residences are already excluded from PGs that support GGS loans. We aim to have this in place as a priority and will work with UK Finance to build on their existing lender commitments. To address concerns raised about the impact of high-cost business lending practices and conduct on small businesses, we will engage with trusted stakeholders in the sector to understand issues in this area.

As set out in the chapter on the impact of the regulatory framework, the regulatory environment was widely raised as affecting the take-up and availability of external finance. This is an area in which the government works closely with the regulators and sector to ensure that regulations affecting the sector are proportionate and create the appropriate conditions for small business growth. Considerable progress has been achieved since evidence was taken through this March consultation, in technical areas of the financial services regulatory landscape, so as to support bank lending and competition^{[footnote 1]}. The government:

• has also launched consultations on the Commercial Credit Data Sharing (CCDS) scheme and Bank Referral Scheme (BRS)
• is taking forward reform of the Consumer Credit Act (CCA) and reforms to streamline Know Your Customer (KYC) processes
• is working with the regulators on developments in specific areas of prudential regulation

As outlined in ‘section 3: alternative models of finance’, Community Development Finance Institutions (CDFIs) were recognised for providing support and lending to businesses that would otherwise find it difficult to access finance. Last year we announced that Community ENABLE Funding, a variant of the ENABLE Funding Scheme, will support up to £150 million of lending over the next 2 years to increase the availability of finance to the social impact sector. Further recognising the importance of relationship lenders that understand the local communities they serve, we have asked Responsible Finance to develop a CDFI Roadmap to establish a pathway over the next 5 to 10 years to growing this important sector for small businesses lending.

We are also continuing to explore the role that regional mutual and co-operative banks could play in boosting business investment. We will publish a research paper by the National Institute of Economic and Social Research (NIESR), in January 2026, which considers the potential impacts of alternative models of commercial finance for the UK economy.

As noted in ‘section 4: underserved entrepreneurs’, we received feedback that businesses led by women, ethnic minority, and disabled entrepreneurs face particular challenges in accessing the finance they need to grow. In ‘Backing your business’, we set out that we will continue to work with established groups, such as the Invest in Women Taskforce and Investing in Women Code, to raise the profile of, and actively empower, female entrepreneurs. We will continue to grow the reach and impact of the Disability Finance Code for Entrepreneurship, working with UK Finance, British Business Bank and the wider sector to increase sign-up and strengthen commitments.

The government will also continue to work with CREME, the Centre for Research in Ethnic Minority Entrepreneurship, as well as finance providers and ethnic minority businesses themselves, to address the issues highlighted by respondents. We intend to further explore ways to collect data on underrepresented businesses, in line with feedback received on data collection.

The following sections set out a detailed account of the evidence submitted to the call for evidence.

Section 1: barriers to the demand for finance

Financial awareness and navigating the market

As part of the call for evidence, the government sought feedback on whether financial education or knowledge and availability of information are barriers to demand for debt finance, and how such barriers can be addressed.

A common thread in responses received was that financial education and access to information are significant barriers to business demand for external finance. Business representative organisations and lenders both noted that the level of financial literacy among small businesses is low, with a lack of awareness of the available options and difficulties navigating a complex market. Financial confidence and literacy were raised as key barriers for underserved groups, particularly female founders, early-stage and micro-businesses. Finance stakeholders acknowledged the need for provision of financial education on credit-building and forward planning to help micro-businesses become ‘finance ready’.

Small businesses are not always aware of the finance options which would best suit their needs and where to obtain it. Business support providers noted that many businesses unknowingly approach the wrong type of funder for their needs, leading to wasted time, repeated rejections, and further erosion of confidence in the finance system. Some finance stakeholders suggested that while there is no shortage of information on business finance, small businesses need more help to better navigate it. On the other hand, a smaller number of business respondents suggested that there is not enough information available.

Respondents have suggested that government will need to play a role in increasing knowledge and awareness of the finance options available and the best routes to obtain them. There was a consensus that improving small business financial literacy and awareness requires a collaborative approach between government, the private sector and business support organisations. Small businesses suggested they would value independent sources of information, including government channels.

Respondents to the call for evidence welcomed the development of the Business Growth Service (BGS), noting its potential to improve access to information and support for SMEs and raise awareness of finance options as a neutral source of information. There was a consensus that a new approach to business support will help to streamline existing services and ensure that businesses are able to obtain the information they need. Under BGS, a number of different services will cater to the access to finance needs of small businesses, including:

• The Business Support Service
• Help to Grow: Management (HtG:M) and Help to Grow: Management Essentials
• Growth Hubs
• Business Academy (transitioned from UK Export Academy)

There was broad emphasis on the point that the BGS could best support access to finance by partnering with trusted providers, as well as those that understand the specific challenges that underrepresented groups face. Social investment sector respondents emphasised the need for a place-based approach, emphasising that the effectiveness of business support can only be increased by tailoring investment products and related business support to the needs, barriers and opportunities within a specific area, which will be best understood by local actors. 

We agree that a place-based approach contributes to positive outcomes for small businesses, as demonstrated by our support for Growth Hubs, which are funded by DBT and delivered in partnership with Mayoral Combined Authorities/local authorities. The network of 41 Growth Hubs across England provides local businesses of any size or sector and at any stage with access to advice and support. Several responses from the finance sector highlighted the value-add of Growth Hubs. However, one trade association raised challenges such as business owners having to navigate disjointed services and differences in the level of support available in different regions. From 2025, Growth Hubs will operate a new partnership delivery model with BGS, ensuring a consistent approach to business support across all regions. 

Several respondents suggested that BGS should be supported by a comprehensive awareness raising campaign with SMEs and a plan for driving traffic to the service. We recognise the importance of this service reaching small businesses, and a cross-government Growth Mission Campaign launched in November 2025, promoting numerous business support offers which will be co-branded with the BGS and drive traffic to Business.gov.uk.

Education settings

Key finance and business stakeholder groups underlined the importance of early development of financial skills to support entrepreneurship. In particular, business representatives groups and the finance sector both emphasised that financial education in the UK should be a bigger focus in the national curriculum, recommending mandating financial education in schools.

Financial literacy is already included in the national curriculum for secondary schools in England and in primary and secondary schools in Wales, Scotland and Northern Ireland through maths and numeracy. On 5 November 2025, the government published our response to the independent review of the curriculum, assessment and qualifications system in England and will be strengthening financial literacy in schools, ensuring students are better prepared for life beyond the classroom. As part of this work, the government committed to make financial education compulsory in primary schools in England, as part of a new statutory requirement to teach citizenship, ensuring that children are supported to develop healthy attitudes to money at an early age.

As set out in ‘Backing your business’, DBT and DfE are collaborating to identify and promote best practice in enterprise and entrepreneurial education in schools, colleges and universities in England. This will include:

• improving access to entrepreneurship toolkits
• working with organisations such as Young Enterprise
• promoting enterprise competitions such as the Fiver Challenge for primary school students and the Company Programme for secondary school students
• launching an ‘Entrepreneurship Month’
• hosting youth entrepreneur roundtables
• formalising local partnerships between education providers, local small businesses, and careers hubs

Since publishing ‘Backing your business’, we have been collaborating closely with stakeholders in the entrepreneurship ecosystem to scope out an upcoming youth entrepreneurship roundtable and ‘Pitch to Parliament’ event, currently pencilled for early 2026. DBT is also in conversation with colleagues at DfE to explore further options for embedding enterprise education into enrichment frameworks and support at educational institutions.

Lenders also noted that increased support for those graduating from university would enhance entrepreneurship, with university spinouts being a significant opportunity for growth. Several respondents suggested that partnerships with higher education institutions could be improved. We note that support for university commercialisation is at its highest level ever. For example, the Higher Education Innovation Fund, which supports knowledge exchange between universities and the wider world including student and staff entrepreneurship, is £280 million for the 2024 to 2025 academic year, including £20 million specifically for commercialisation.

University spinouts can also access a range of financial support from Innovate UK and the British Business Bank. We continue to review and improve the effectiveness of government’s support for university commercialisation and business partnerships.

Outside of these formal education settings, government also offers training designed to support SME business leaders through the HtG:M programme. Developed in partnership with industry experts and leading business schools, it combines a practical curriculum, with one-to-one support from a business mentor, peer-learning sessions and an alumni network, equipping SMEs with the tools to grow their businesses. The course equips businesses with the core skills required to lead a successful, growth-oriented business with a specific module on finance. The programme is 90% subsidised by government, with participants contributing £750.

The shorter Help to Grow: Management Essentials course is open to all and free to access. It consists of a series of bite-sized videos and online resources, which participants can move through at their own pace.

International comparisons

We invited respondents to share examples of support and advice frameworks in other jurisdictions that they believe could benefit the UK. Some respondents to the call for evidence therefore highlighted international comparisons and best practice. For example, one respondent noted that in Germany all registered companies in industry, commerce or service are required by law to be a member of a Chamber of Commerce and Industry, which in turn can provide a supporting role to the business.

Respondents mentioned that in the US, the Small Business Administration (SBA) and its Community Advantage Program integrate finance with mentorship and training. Respondents suggested that BGS could learn from successful international models like the US Small Business Development Centres (SBDCs) which provide effective advisory services improving SME financial readiness. Australia, Canada and Singapore were also highlighted as having good models of support and advice. 

In July 2025, we launched BGS as a nationally recognised brand for business support in the UK, integrated with long-term, locally-led delivery through Growth Hubs in England and a new digital service (Business.gov.uk).

Signposting

There was a broad consensus among respondents that there is a need for better signposting, including for specific sectors such as retail. Respondents acknowledged that resources like the British Business Bank’s Finance Hub are helpful, but greater promotion and integration with existing trusted networks such as symbol groups, trade associations, and local business support services could improve reach and effectiveness. Some trade associations noted that practical guidance and case studies focused on finance scenarios relevant to specific sectors could help build confidence and understanding. 

Finance stakeholders suggested that BGS should signpost all forms of available support, including support provided by institutions outside government such as lenders. The Business Support Service, delivered through multiple channels, currently provides tailored information, advice, guidance and signposting on any business topic, including sources of finance. The new digital arm of BGS Business.gov.uk, highlights key information for smaller businesses and assists them in finding the right finance from the right type of provider by signposting to trusted resources. The digital service supports small businesses to identify their funding needs and options available based on factors such as location, sector and turnover, therefore providing a curated and bespoke list of external finance options.

DBT’s first public facing artificial intelligence (AI) tool on business.gov was released in October 2025, helping businesses navigate the funding support available to them in a more targeted way. The AI summariser is a key component of our broader ambition to personalise business support and improve access to finance. The AI summariser is a proof of concept to understand whether summarisers like this are useful for businesses, which will help us make decisions on AI tools in the future. BGS will also engage with delivery partners across the UK nations to share best practice around the use of AI tools across digital platforms​.

Call for evidence respondents highlighted that offering information in multiple formats, such as written guides, video explainers, and blogs, caters to different learning styles and makes the content more accessible. This feedback will inform our design and development of the service.

There was a consensus that reducing perceived barriers, such as fear of rejection or aversion to debt, through case studies, peer success stories, and a more transparent borrowing journey, can further encourage SMEs to consider finance as a tool for growth. We recognise that case studies are an impactful tool to shift attitudes towards borrowing for growth, and will continue to regularly spotlight success stories through resources such as the British Business Bank website.

British Business Bank Finance Hub

Some local authorities and trade associations were supportive of a government and British Business Bank-led education and awareness campaign focused on business finance, including online programmes and a resource hub. Respondents noted that the British Business Bank’s 3-step finance finder is a useful tool to understand finance options available. The British Business Bank Finance Hub also offers independent and impartial information on different finance options for scale-up, high growth, and potential high growth businesses. Finance sector respondents supported the expansion of this tool to educate and guide SMEs to suitable funding options.

We have committed to upgrading the British Business Bank’s information service, the Finance Hub, with easier to navigate advice to improve finance readiness in SMEs and drive demand. The British Business Bank Finance Finder Tool is now embedded in the Business.gov.uk triage, with users being signposted to it via the curated personalised user guide.

Mentoring and advisory services and intermediaries

There was a broad consensus that enhancing access to business support services – such as mentoring, finance-readiness assessments, and help with preparing financial forecasts – can improve the quality of loan applications and increase the likelihood of successful lending outcomes. Some finance stakeholders suggested that advice services should start by assessing what the business is planning to do as opposed to the type of finance they might think is correct. 

A broad cross-section of respondents, including the finance sector, businesses and local authorities, were supportive of further integration of financial support and advisory services, in addition to provision of advice and mentoring, and facilitating business introductions and networking. Social lending stakeholders noted that mentoring and support provided before a finance application can make a difference, especially for first-time borrowers. They also noted that in-loan mentoring and financial coaching, such as through CDFIs, are just as important.

Some respondents highlighted that fewer SMEs are taking professional advice than 5 years ago. In relation to support provided by financial institutions, some business respondents raised that while larger SMEs will have a business relationship manager at the bank, this is not afforded to smaller SMEs so they are unable to access advisory support. As such, some respondents suggested that the private sector can also play a role by coupling financial support with advisory services, through which lenders could help businesses become more resilient and adaptable to market trends, which in turn may increase their willingness to borrow. 

Business and lending sector stakeholders both noted the low usage of government-funded support services. Respondents noted that training on business strategy skills along with financial literacy could address this barrier, particularly through integration of financial literacy into business training schemes and sector-specific support.

Some respondents in the wider finance ecosystem suggested that embedding advisors and brokers into BGS or other platforms would ensure that support is human as well as outcome-driven. Recognising the importance of bespoke and independent advice, BGS will work closely with Business Support Service advisors who engage directly with small businesses and support them to evaluate their financial health and funding needs.

Commercial finance brokers

As part of the call for evidence, the government sought views on the channels small businesses use to seek finance, including specific experiences of using commercial finance brokers.

To improve lending to small businesses, respondents emphasised the importance of strengthening the network of financial intermediaries such as brokers, advisors, and platforms that connect lenders with small businesses. Rather than a lack of financial products or demand, a significant number of respondents suggested the main barriers to accessing finance are logistical and advisory in nature. Regulatory bodies observed that funding applications submitted via accountants, business advisers, or qualified brokers tend to be more successful, as these professionals help businesses explore a wider range of options. Sector-specific expertise among brokers was valued for its ability to streamline the search for finance, while local authority stakeholders noted that brokers can disengage when challenges arise.

Overall, among the responses received, experiences with brokers were mixed. There was recognition of the increasing role of brokers in helping navigate the diverse and complex market for credit provision for SMEs, and that utilising brokers was likely to become more common as it is in other areas of finance, such as mortgages. Some small business owners reported encountering high interest rates and difficulty identifying trustworthy, affordable brokers who could secure appropriate finance. Others suggested that brokers prioritise larger loans and lenders that are easier to work with, driven by commission incentives, which can result in small businesses missing out on better-value options.

To address these issues, respondents proposed that broker standards could be improved through accreditation, membership in professional bodies like the National Association of Commercial Finance Brokers, and requirements for qualifications, whole-market access, and standardised commission disclosures. The government acknowledges concerns raised by stakeholders in the sector in relation to particular instances of broker conduct, including issues around transparency on commissions and its relationship with high-cost lending. We will engage with the sector to better understand the impact of this issue and seek to support best practice on transparency and broker conduct.

Stakeholders from the social lending sector acknowledged that while CDFIs generally have positive relationships with commercial finance brokers, concerns persist about the broader broker market. Raising awareness of CDFIs among brokers was also seen as beneficial.

Finally, given the low usage of commercial finance brokers overall, respondents called on the government to embed brokers more visibly within the business finance support landscape. We acknowledge the positive role brokers can play in helping to reframe debt as a strategic tool for sustainable growth rather than a risk to be avoided. DBT will seek to signpost to reputable professional bodies such as the National Association of Commercial Finance Brokers where appropriate in our wider business support offer.

Barriers to application

Small businesses noted that they find the application process for finance to be challenging and lengthy. Similarly, there was a consensus among finance sector and business representatives that there is a perception that debt finance is too expensive, and the application process overly complex and time-consuming. 

Several responses suggested that some businesses may apply for finance but do not know the reason for being declined and may be rejected again in repeated applications (including through the BRS) in the absence of feedback on improving their applications. This issue, among others, is being specifically consulted on in the government’s review of the BRS that was published on 27 October 2025, which seeks to explore what feedback and information might help support SMEs in accessing finance within the BRS. Business support providers and finance sector respondents agreed that most small businesses are unaware of non-bank debt finance and do not have the time or expertise to investigate alternative sources of finance if rejected by their bank. 

Consistent with our evidence base, responses reiterated that small businesses are likely to approach their existing bank or main supplier when they do seek finance, rather than exploring a wider range of options such as challenger banks, commercial finance brokers or online lending platforms. This limited awareness or confidence in alternative providers may restrict access to more suitable or competitive finance products. For the retail sector in particular, one respondent noted that if their first point of contact declines an application or offers unattractive terms, many retailers do not pursue other routes, contributing to lower overall uptake of debt finance. This trend was also mentioned across other sectors. 

Finance sector respondents suggested that local networks and sector associations can play a role to address this, for example by sharing stories of similar businesses that have successfully used debt finance to overcome fear and to build confidence.

Alternative finance options

While respondents noted that small businesses are unaware of the benefits of debt finance, some also suggested that there is a lack of knowledge of innovative and alternative finance models. There could be an opportunity to grow these innovative types of finance through education and knowledge development. For growth-stage founders, it was noted that addressing knowledge gaps around research and development (R&D) relief as part of financial literacy and advisory support could be beneficial.

Respondents highlighted that despite most firms being aware of debt financing sources, there remains a lack of knowledge about alternative finance options like equity, crowdfunding, and angel investment. It was underlined that awareness activities should be prioritised across the entire finance market, rather than limited to traditional options. 

Business groups therefore emphasised the need to support SMEs to ‘discover’ diverse funding opportunities. Finance and business respondents agreed that the government should increase awareness of equity finance, particularly among growth-stage businesses. Business groups also noted that the market could go further in making financing products clearer and easier to understand and that there is a role to play for the finance and investment sector to market these different options more clearly. 

To enhance businesses’ knowledge of their finance options, DBT’s Business Academy (transitioned from UK Export Academy) provides businesses with expert advice through online webinars on topics including digital skills, marketing, exporting and access to finance. A series of webinars focused on Finance for SMEs was launched in September 2025. The content includes the types of finance available to businesses (debt, grants and equity finance), how to access finance and getting your business investment ready.

Digital capabilities

Finance and technology stakeholders agreed that digital skills, particularly addressing the digital skills gap, can support enhanced access to finance for small businesses. They noted that better digital adoption support would help more businesses access the finance they need to grow and improve their business capability, such as by using accounting software. Small businesses may be unsure or unaware of potential benefits of digital technologies for their businesses. Critical barriers to digital adoption that respondents raised were a lack of information, a skills gap and a lack of resources. 

The government is supporting small businesses to enhance digital capabilities through its SME Digital Adoption Taskforce, which has brought together industry experts to address digital adoption barriers among small businesses. Its focus is on increasing SME uptake of mass-market, basic digital technology (such as Customer Relationship Management systems, resource planning software or e-commerce tools).

Some finance respondents suggested that AI-enabled tools could potentially be used to help an SME understand the steps involved in accessing debt finance without needing costly brokerage or legal services. One respondent suggested that a diagnostic tool or guided journey could also help to pinpoint their current stage and pain points, allowing for more accurate signposting to relevant information and support.

Business experiences of seeking finance

As part of the call for evidence, the government sought feedback from small businesses on their experiences of seeking debt finance. Small business respondents indicated that a range of factors influence their choice of finance provider, including:

• affordability
• competitive interest rates
• decision-making speed
• flexibility of terms
• the availability of physical branches for in-person support

Despite the range of available options, many respondents, particularly microbusinesses with 10 or fewer employees, suggested that they struggle to access suitable finance options. Respondents called for lenders to increase both the amount and flexibility of credit available to them. Some highlighted coronavirus (COVID-19) pandemic-era lending schemes as more effective in serving small businesses, although the government notes that this was an exceptional intervention justified by the unprecedented situation at the time. 

The government also recognises that financing a microbusiness is more complex and riskier commercially, where there is likely to be a limited trading record for the company and few or no business assets. Conventional finance, such as loans, may not be suitable or available from mainstream providers, and SMEs may need to consider a wider range of options utilising brokers or other specialist finance, and assess their options and needs.

In many cases, traditional loans may not be appropriate. Other sources of credit, such as overdrafts, credit card facilities or invoice financing, may be as or more important, especially where working capital is needed.

The government welcomes work within the financial services sector to think more critically about product offers and the needs of small businesses, and would encourage more thinking about the role that the sector is able to play in financing the real economy.

Cash flow management, especially in response to late payments, was the primary reason small business respondents stated that they seek debt finance. As set out in ‘Backing your business’, we will legislate to end late payments which costs the UK economy almost £11 billion per year and closes down 38 UK businesses every day. This will be the most significant legislation to tackle late payments in over 25 years and will give the UK the strongest legal framework on late payments in the G7.

Aligning with the feedback received from business representative organisations and trade associations, some small business respondents reiterated that opaque loan application processes, lack of clarity on assessment criteria, and slow decision-making can result in rejection without clear explanations. This may drive businesses toward high-interest online lenders, especially when traditional banks close accounts or delay decisions.

Younger business owners, particularly those who do not own property, noted that they face additional barriers as many lenders require property ownership as a condition for finance approval, which may exclude aspiring entrepreneurs who rent. Moreover, some respondents suggested that rigid, automated lending systems lack the nuance needed to assess the true potential of small businesses which may otherwise be viable. One respondent shared the example of rejections due to the liquidation of a subsidiary during the COVID-19 pandemic, which led to the use of a high-cost lender that approved their application for finance.

Small business respondents suggested that while they do not consider themselves high-risk, banks often do. There was an overall sentiment among these responses that banks have little appetite to lend, offering only very small or very large amounts which do not always meet the investment needs of such SMEs. Community businesses in particular raised that they often do not meet traditional high-growth criteria needed to facilitate access to finance. This perception can be attributed to a disconnect between how SMEs view the level of risk in their business in comparison with the way in which this is evaluated by lenders, leading to the perspective that there is low appetite to lend.

In sectors such as hospitality, one respondent stated that the withdrawal of traditional overdraft facilities has led to the rise of short-term lenders offering expensive financing repaid through future credit card sales. This validated concerns raised by several respondents, that high-cost lenders remain a last resort for many businesses, sometimes leading to detrimental impacts. The government will work with stakeholders in the sector to better understand the nature of these concerns and potential mitigations.

Feedback from small business respondents reiterated the key themes outlined by business representative groups and trade associations, including the impact of the shift to digital banking. Respondents noted that in-person support has been replaced by impersonal chatbot services, leaving those with limited staff and expertise struggling to navigate complex application processes. Errors in documentation and reliance on personal funds or costly external help were among the consequences raised in relation to this change in the market.

One trade association noted that the increased digitalisation of credit provision by the finance industry may limit lenders’ ability to fully understand the requirements of certain industries, which can limit access to finance. The shift to digital banking has nonetheless brought advantages too, such as increased convenience and efficiency for businesses who find these services simpler to navigate and can progress their applications at a faster pace. Non-bank digital providers of credit have also helped facilitate a significant flow of finance to businesses that may otherwise find it difficult to obtain traditional bank finance.

Wider factors affecting the demand for finance

The call for evidence sought to understand:

• why some small businesses are permanent non-borrowers
• whether this should be considered a problem
• what policy interventions could be beneficial

Business representative groups noted that a relatively stable proportion of businesses are permanent non-borrowers. Some businesses will simply not need to borrow. They could be:

• cash generating
• have limited capital outlays
• not be on a high-growth trajectory

For others needing credit but remaining permanent non-borrowers, this was attributed to a range of factors, including:

• a lack of face-to-face banking services and advisors
• lack of confidence
• lack of perceived need
• experiences of rejection
• a lack of trust in financial institutions

Respondents suggested that some companies are permanent non-borrowers simply due to a lack of understanding and resources. Some still prefer to rely on personal networks or avoid debt altogether, while certain minority groups may have cultural reasons for avoiding debt finance.

There were mixed views on whether the existence of permanent non-borrowers is positive or negative and whether a policy solution is necessary. Trade bodies noted the importance of encouraging confident borrowing where it can support sustainable growth.

There was acknowledgement that permanent non-borrowers are not always a problem. Some businesses are not interested in high growth or otherwise do not need external funding. Some respondents warned of sensitivity in this area, stating that the government should not inadvertently encourage people to take on unnecessary or unjustified risk. 

To a lesser degree, respondents from some sectors suggested that some businesses that have historically avoided borrowing are now incentivised to do so to meet green transition targets, such as managing the upfront costs of green technology and infrastructure changes, and make the most of export opportunities. 

Trade associations suggested that measures to address permanent non-borrowers should focus on:

• building trust in the financial system
• improving awareness of appropriate financial options
• offering tailored advice through familiar and accessible channels

There was a consensus on the need to reframe messaging around debt finance to appeal to more risk-averse borrowers, emphasising it as an opportunity for growth. Many respondents suggested the need to raise awareness of success stories of businesses of a range of sizes, locations and sectors, who have borrowed and achieved their goals. National and regional campaigns highlighting case studies of how businesses have accessed the finance they need to successfully grow could support such efforts.

Respondents from the social lending sector emphasised the need to strengthen the awareness of trusted, relationship-focused lenders such as CDFIs that help build business confidence to borrow. They also indicated that different models of finance such as grants, repayable models and blended finance options could serve as stepping stones to accessing repayable finance. 

Finance sector respondents highlighted the potential for data sharing to address the issue of permanent non-borrowers, such as by using existing datasets (HM Revenue & Customs and Companies House) to identify high-potential firms that are growing but underutilising finance. Respondents similarly suggested that the use of open finance could achieve similar outcomes.

Borrowing costs

Respondents to the call for evidence from both business and the finance industry also underlined the impact of borrowing costs, citing high-interest rates as a barrier to demand for finance. Several respondents expressed a view that, where credit is available, interest rates and fees often seem prohibitively high. This increases the total cost of borrowing and was felt to outweigh the expected benefits of investment, suppressing demand.

We recognise that lenders have operated in comparably higher interest rate environments over the last few years, relative to the period of near-zero rates which followed the financial crisis, which has led to an increase in rates overall. In addition, different lenders will have different costs associated with their lending which can lead to a variation in the interest rates that they charge clients. Ultimately, interest rates are a commercial matter decided by lenders, reflecting:

• the base rate
• the risk of the applicant
• a margin to make the loan commercially viable given the cost of underwriting and broader bank funding costs

Risk aversion and economic uncertainty

There were mixed views among respondents on the impact of risk aversion on the uptake of external finance. While some business representatives argued that lenders have shown a lower risk appetite following the financial crisis and COVID-19 pandemic, there was a consensus among different stakeholder groups that economic uncertainty has made businesses hesitant to take on more debt. Respondents ranging from local authorities to major banks also referred to a fear of debt among small businesses, whose balance sheets are still recovering from previous economic shocks. 

It was therefore suggested that the government should focus on changing risk culture and increasing businesses’ confidence to grow (and borrow if needed) by building a more positive narrative around financing provision help shift mindsets. Finance sector respondents suggested that government messaging should normalise the idea that seeking finance is not a sign of weakness, but a strategic choice. 

The social lending sector also highlighted that supporting mentoring programmes and showcasing success stories where responsible borrowing fuelled growth can help normalise debt as a strategic tool for SMEs. As part of awareness raising efforts, loan finance for businesses could be framed in a much more positive light to reduce fear and negative connotations around the idea of debt finance. 

Some business groups noted the difference in treatment of business failure in the UK compared with other jurisdictions, where this may be viewed as an expected part of the business journey and therefore have a limited effect on lender risk appetite.

The government will continue to work with business representative groups and the private sector to ensure that the potential benefits of borrowing to grow are understood, including through information and case studies on debt finance. The initiatives to address financial awareness (mentioned earlier in this section) also address the issue of disproportionate risk aversion.

Section 2: characteristics of the lending market

Availability of finance and diversity of products

The call for evidence sought feedback on a range of lending market developments that may influence the supply of finance. Respondents highlighted a range of challenges and opportunities within the small business finance landscape including observations of more conservative lending practices and stricter affordability assessments following the Financial Crisis.

While a respondent felt that banks and finance providers still demonstrate the capacity and willingness to support viable businesses, another respondent argued that many small businesses, especially newer or smaller ones, remain underserved due to lending models that favour large loans and require physical assets as collateral. 

There was a consensus among business respondents that financial institutions should evolve their offerings to better meet the needs of modern small businesses. This included suggestions of:

• designing lending products that support innovation
• streamlining application processes
• introducing flexible underwriting approaches that reflect the realities of a service-driven, digital economy

Simplifying loan applications and making business bank account setups more predictable could encourage more small businesses to seek finance. Respondents also called for greater flexibility in the types of lending products available, including revenue-based financing, which some stated could be difficult for small businesses to access. One respondent also suggested a hybrid funding approach, combining grant funding with sustainable finance elements such as flexible repayment terms.

Some business respondents suggested that lenders should be encouraged to adopt models based on economies of demand, making smaller, high-need loans more commercially viable. Some British Business Bank programmes already seek to address this funding gap in the market. One respondent suggested that the government and British Business Bank should also incentivise specialist lenders to invest in future technologies, ensuring small businesses have the financial tools needed to grow and adapt in a rapidly changing economy. The Development Bank of Wales was cited as a positive example, offering seed finance and growth capital up to £10 million, with options to convert equity to loans.

Some respondents suggested that expanding access to programmes like the British Business Bank’s Start-Up Loans and integrating finance tools into platforms small businesses already use, such as e-commerce or accounting software, could further support timely and strategic borrowing. Over the next 5 years, we plan to expand our offer to start-ups and deliver at least 85,000 loans, increasing our annual deployment by a third. We will also extend eligibility to businesses that are up to 5 years old, to ensure existing businesses that have not built a track record can continue accessing low-interest rate finance, and increase the average loan size to recognise the rising costs of being a start-up.

Some business representative groups and social lending sector respondents raised concerns about instances of irresponsible lending practices by some market actors. For example, one respondent suggested that direct marketing and mis-selling of loans have contributed to unmanageable debts and business failures.

The government acknowledges this concern and will continue to engage with businesses, finance providers and commercial finance brokers to better understand issues in this area. We would welcome further evidence on this matter to support our understanding, and note too the importance of the role of the Financial Ombudsman Service (FOS) here. In order to ensure that SMEs are better protected, and following some historic high-profile cases of SME poor treatment, the jurisdiction of the FOS was significantly expanded in 2019. SMEs are now able to access the ombudsman service if they have a turnover of less than £6.5 million and fewer than 50 employees, or a balance sheet total of less than £5 million. These thresholds cover 99% of the 5.5 million private sector businesses in the UK.

British Business Bank: contributions to supply of finance

Many respondents shared their insights and suggestions regarding the GGS and broader government-backed finance initiatives delivered through the British Business Bank. Suggestions included expanding the GGS to better align with international schemes, and suggestions for what could help the scheme more effectively support small business financing included:

• adequate resourcing
• longer term lengths beyond 6 years
• increased loan amounts
• sector-specific variations
• extended approval timelines for lenders
• a permanent or longer-term commitment

Several respondents advocated for a fiscally neutral expansion of the GGS, with one proposing that lenders should adjust fees based on business risk profiles. They considered that this approach could allow more funding for lower-risk businesses while still accommodating higher-risk enterprises. There was also support for the expansion of the green variant of the GGS pilot, and a call to include sole traders and co-operatives in the scheme.

As set out in ‘Backing your business’, we recognise the importance of GGS to facilitating small business lending and have put the scheme on a longer-term footing, giving lenders the certainty they need to use the scheme strategically and help more businesses access the finance they need to grow and invest. We will also continue the ENABLE programmes and have increased the capacity of the ENABLE Guarantee Scheme by £3 billion, helping to support lenders such as banks and non-bank financial institutions to unlock more lending to SMEs. This includes providing guarantees to increase lending across different parts of the economy, including asset and lease finance.

Since the call for evidence was published in March 2025, the government has announced a number of measures to improve our suite of support for small businesses, including through the launch of ‘Backing your business’. We have increased the British Business Bank’s capacity and capability so that it can invest across the lifecycle of firms with high potential. At the Spending Review, the government announced the British Business Bank’s total financial capacity would rise to £25.6 billion, enabling a two-thirds increase in support for UK businesses.

Some respondents raised concerns about the effectiveness of existing schemes, such as questioning whether the GGS genuinely facilitates access to finance or merely supports loans that would have been approved regardless. Similar criticisms were directed at past schemes like the Small Firms Loan Guarantee and Enterprise Finance Guarantee, which were seen as primarily protecting lenders rather than encouraging risk-taking. However, independent evaluations of these schemes as well as that of the Recovery Loan Scheme 1.0 (GGS predecessor) point to high finance additionality (the proportion of finance which lenders would not have lent commercially). Evaluations for GGS are currently being procured and will commence in the financial year 2026 to 2027.

Some trade associations highlighted the impact of the Coronavirus Business Interruption Loan Scheme (CBILS), with some businesses, such as those in the travel industry, struggling with high-interest payments. Fairer repayment terms were recommended to support recovery and growth in this sector. Moreover, some respondents suggested reintroducing partial government guarantees, as used in larger CBILS loans, to improve small business lending and ease personal guarantee requirements. 

Some respondents also criticised the British Business Bank’s regional funds, which they viewed as being expensive and having onerous terms, suggesting sector-specific financing options like Innovate UK loans as more suitable alternatives. The government notes that evaluation feedback from beneficiaries of the regional programmes indicates high levels of satisfaction with the application process, including the speed of decision-making and the terms and conditions. Of all Northern Powerhouse Investment Fund I beneficiaries who responded, 70% gave a score of 4 or more (out of 5), and 58% of Midlands Engine Investment Fund I beneficiaries gave a score of 4 or more (out of 5), to the terms and conditions offered by the funds relative to comparable providers and products.

Other respondents to the call for evidence called for wider eligibility for British Business Bank debt programmes, including non-collateralised loans and working capital finance, and recommended expanding the remit of the Nations and Regions Investment Funds to cover growth capital. 

Finally, there were some concerns about access to these schemes, with one respondent suggesting that franchises face difficulties obtaining British Business Bank loans, often finding personal loans easier to secure.

The government has tasked the British Business Bank with addressing issues in small business finance markets, including those listed in this section. On 21 October 2025, the Chancellor and the Secretary of State for Business and Trade wrote to the British Business Bank, setting out its mission to drive economic growth by helping smaller businesses access the finance they need to start, scale, and stay in the UK. They also set 4 objectives, including improving the way finance markets work for smaller businesses. On 24 November 2025 the British Business Bank responded with its 5-year strategic plan setting out how it will deliver on its mandate.

The British Business Bank designs, delivers, and manages a range of products through over 200 delivery partners, helping to increase both the supply and diversity of finance available to smaller businesses. Its rate of deployment will increase by two-thirds in 2026 to 2027, from approximately £1.5 billion per year to £2.5 billion. The British Business Bank have set out that they want to use this uplift to enable them to support more smaller businesses through expanding their Start Up Loans offer and more than doubling the finance supporting their portfolio guarantee schemes. In research from 2024 to 2025 which is the most recent year for which figures are available, the British Business Bank helped around £6.8 billion of finance to reach around 28,000 smaller businesses in the UK, meaning 1 in every 200 UK businesses received a flow of finance supported by the Bank in 2024 to 2025. Around £1.2 billion of this was deployment of public funding and this was accompanied by £2.6 billion of lending guaranteed and £3.0 billion of private sector capital crowded in. The Bank’s Strategic Plan clearly builds on their strong track record in this space, with a focus on deploying their own guarantees and funding, and mobilising private sector capital at scale.

Personal guarantees

As part of the call for evidence, we sought feedback on the role played by PGs when seeking finance. This included evidence on the role PGs play in credit provision, including the extent to which the requirement for a PG has enabled access to credit by SMEs and evidence of the extent to which issues relating to the calling of PGs have been experienced.

The role of personal guarantees in facilitating access to finance

Finance stakeholders emphasised the important role that PGs play in supporting SME lending. They argued that PGs are a vital tool for lenders, providing the necessary security to make informed credit decisions, encourage responsible risk-taking by businesses, and help reduce expected losses. By mitigating risk, PGs enable broader access to finance and can even lower the cost of borrowing, for example, by reducing monthly payments under hire purchase agreements. Unsecured business loans with PGs are typically quicker to arrange than other types of secured loans and are often easier to apply for by small business owners and start-ups who lack business assets.

Contrary to some concerns, finance stakeholders reported that they do not consider PGs a major deterrent for SMEs seeking finance. They noted that factors such as the economic climate, business performance, and loan costs are more significant in influencing borrowing decisions, as is reflected in many external business surveys.

PGs were also seen as a mechanism to encourage borrower accountability and responsible borrowing, and a mitigant against fraud. Many CDFIs, for instance, require PGs on loans above £25,000. Lending sector respondents stressed that PGs are not primarily instruments for debt recovery, but help foster close collaboration between business owners and lenders, especially in the event of financial difficulties. Specifically, PGs serve to drive responsible behaviour by business borrowers who will have a personal stake in the successful repayment of the loan. Additionally, PGs are believed to play an important role in fraud prevention.

Our evidence found that some guarantors choose to take out insurance to cover their PGs, and some respondents suggested that broader use of strategic insurance products such as business interruption or key person insurance could strengthen a business’s risk profile and potentially reduce the need for PGs. 

While some have called for restrictions on PGs, finance stakeholders cautioned that doing so could negatively impact the availability of credit to SMEs. Instead, they recommended improving education around PGs to build trust and understanding among business owners. Overall, commercial lenders emphasised that such guarantees were necessary to ensure borrowers are accountable in the event of liquidation and have noted that without PGs, lending to small businesses may not happen or would be much more expensive.

Perception of PGs and impact on demand

Business respondents highlighted that the requirement for a PG can be a significant barrier to demand for many businesses, and are commonly sought for loans to the service sector and newly established enterprises, due to a lack of business collateral. This barrier is especially pronounced among underserved groups, such as women, who reported a reluctance to risk their homes to secure funding. 

A recurring concern was the widespread nature of the use of PGs by lenders. Business representative organisations noted that PGs are perceived to be taken as a blanket requirement, regardless of a business’s financial health or available security. This practice is also seen as a major deterrent to borrowing, particularly for younger entrepreneurs who may not own property or have sufficient equity.

One business representative group suggested that many businesses, especially those affected by late payments, are forced to seek overdrafts, which banks may tie to PGs, even when the business has adequate security on its balance sheet. Small business stakeholders expressed frustration that banks do not accept tangible business assets as sufficient collateral and are unconvinced that PGs are only enforced as a last resort. This has led to a reluctance, in some cases, among small businesses to access finance when PGs are involved. 

Furthermore, respondents argued that lenders should focus more on the performance and potential of the business rather than relying on PGs. They suggested that this approach would instil greater confidence in SMEs and reduce the personal risk to entrepreneurs.

One respondent called for the introduction of light-touch regulation to prevent the imposition of PGs as a default requirement. Suggestions included bringing these within the scope of the FCA’s Consumer Duty or broader regulatory remit, although the government notes that the Consumer Duty can only be applied to activity within the FCA’s regulatory remit. While we do not have evidence that points to adjusting the regulatory framework in relation to PGs, we do recognise that there are some important perception issues around these guarantees which may affect the demand for credit and some concern about how they are or will be used.

One respondent noted that while a few lenders offer alternatives by securing loans against company assets for amounts above £500,000 for buyouts and growth, most SMEs are not seeking such large sums. As such, the current system leaves a gap in non-PG borrowing options for small businesses. Nonetheless, it is also likely that businesses seeking larger sums are more likely to have company assets such as commercial property, and therefore not require a PG from the outset.

Lender practices and safeguards

Finance stakeholders emphasised the importance of ensuring that prospective guarantors fully understand the implications of providing a PG. Lenders emphasised taking a diligent approach in recommending independent legal advice and considerable care to support informed decision-making. While PGs may be called in, this does not automatically result in enforcement action. In practice, lenders noted that they often work collaboratively with guarantors to establish affordable repayment plans, and property repossessions linked to PGs remain rare. This is supported by the data the government received. 

Finance stakeholders highlighted that to further support customers, UK Finance published a set of commitments made by a number of its Commercial Finance members in relation to PGs. Amendments have also been made to the Finance and Leasing Association’s Business Finance Code Guidance, enhancing protections where PGs are involved. These efforts were welcomed by respondents, who also noted that small businesses typically have the option to raise complaints related to PGs with the FOS. 

There was agreement among respondents on the need for greater clarity and education around PGs. Brokers were seen as well-positioned to provide this guidance, helping borrowers understand the associated risks, obligations, and available protection options. Additionally, there were some calls for wider promotion of PG insurance, particularly for first-time or cautious borrowers, to ensure they are adequately protected and informed.

Next steps

The government acknowledges that an increased use of PGs has been part of broader changes in the lending market in recent years, partly compensating for information asymmetries in the wider context of an increase in digital loan provision and rise in smaller SMEs lacking collateral. We recognise however that in the process, this is potentially deterring small businesses from taking out loans. 

Responses to the call for evidence have highlighted the differing views on PGs among respondents, with discrepancies in data across stakeholder groups. This makes it challenging to assess the overall impact of PGs on the SME lending sector while ensuring an appropriate balance of risk between lenders and small businesses.

Taking into account the feedback we received, in ‘Backing your business’, we stated that we will ensure that PGs for facilities delivered through the GGS are used proportionately and that businesses fully understand their purpose and implications, noting that primary residences are already excluded from PGs that support GGS loans. This will include a mandatory Code of Conduct for GGS accredited lenders to ensure communications about PGs are clear and their use is fair and transparent. That work has already commenced and the government aims to complete this and have it in place as a priority.

Where a dampening effect on demand for finance stems from small businesses’ perception of PGs, the solution lies not only in improving transparency and information, but also in fostering broader dialogue with lenders beyond PGs. Businesses will benefit from clearer guidance on when and how to take on debt finance, and on the potential scenarios they may encounter throughout the borrowing journey, including the use of PGs. That is why in the ‘Backing your business’, we also committed to working with UK Finance to build on their existing lender commitments to use PGs responsibly, and with the business finance community as a whole to build businesses’ understanding of how to access the right finance on the right terms to meet their needs.

We note too that the government’s focus on the topic of PGs has led to some lenders thinking more critically about their own application of PGs. We welcome such efforts and broader thinking by the financial industry about what principles and commitments can be applied to the use of PGs to foster greater confidence among the business community. 

We will continue to keep the issues relating to PGs under review and promote further transparency around their use, recognising the necessary role that they play in the supply of finance. This includes working with UK Finance to build on their existing lender commitments to use PGs responsibly, and with the business finance community as a whole to build businesses’ understanding of how to access the right finance on the right terms to meet their needs.

Intangible assets

As part of the call for evidence, we sought to understand the barriers to borrowing to finance intangible investments and the experience of businesses seeking to use intangible assets as collateral for borrowing.

Some business and finance respondents noted that despite the growing economic importance of intangible investments, mainstream lending practices are typically unable to account for the value of IP as collateral, such as copyright, patents or trademarks, when making their lending decisions. Lending against IP tends to be a specialist activity. Information asymmetries contribute to smaller intangible-intensive businesses finding it harder and more costly to borrow than businesses with a sufficient pool of tangible assets.

Some finance respondents noted that lending against IP value is challenging due to:

• capital requirements (notably under the standardised approach)
• a lack of secondary markets for IP
• valuation difficulties

Some respondents highlighted a 2018 British Business Bank and IPO report that identified this as a form of market failure.

A common theme among finance and business respondents was the difficulty and uncertainty in valuing intangible assets. Some finance respondents highlighted the limited visibility of IP in financial statements. Some business respondents also emphasised a need to better support small businesses to identify, protect, and manage their IP assets.

While most respondents identified challenges around financing intangible investments and securing debt with IP assets, several respondents highlighted positive developments:

• growth in equity finance and alternative (specialist) lenders that are better suited to finance IP-rich SMEs than traditional bank lending

• some mainstream banks are starting to more actively engage with IP value in lending decisions. NatWest’s new IP growth loan was identified as a positive example

• reforms to Scottish law on security interests that will make it easier to take security over IP (and other non-corporeal assets) in Scotland

Some finance respondents suggested more should be done to support lending to IP-rich SMEs, building upon market-led initiatives. One respondent noted that while IP-backed debt has existed for a long time, this has mostly been as ad-hoc, one-off deals where a lack of consistent, formal offerings from lenders keeps awareness low. Conversely, another respondent said the funding gap is relatively small, relevant only to technology startups, and suggested a focus on broader solutions to address risk aversion in SME lending.

Several respondents suggested policy solutions to help address concerns around the risk, cost, and unfamiliarity in lending to IP-rich SMEs. For example:

• leverage British Business Bank loan guarantee structures

• review the capital treatment of IP assets, including proposals for a sandbox approach 

• steps to improve confidence and consistency in IP valuation for lending purposes 

• action to better support SMEs to identify and protect their IP 

The government recognises the growing importance of intangible investments for UK innovation, productivity, and long-term economic growth. The UK benefits from a vibrant venture capital (VC), venture debt and alternative credit ecosystem that support IP-rich SMEs. Some UK banks are now more actively considering IP value in growth-lending products.

As set out in the Industrial Strategy and Small Business Plan, the government is working closely with industry, financial institutions, and regulators on how best to support lending to innovative and high-growth IP-rich SMEs. This autumn, a newly established cross-government working group and the IPO’s industry IP Finance Advisory Group have been exploring measures to improve lending.

As set out in the Entrepreneurship Prospectus published alongside the November 2025 Budget, to further support the provision of debt funding to the wave of new innovative businesses that lack physical assets, the government has asked the British Business Bank to explore using its existing financial guarantee capacity to support IP-backed lending.

The impact of the regulatory framework

We received substantial feedback, primarily from finance sector respondents, on the impact of the regulatory framework on lending to small businesses. Finance sector representatives highlighted that multiple regulators and public bodies now have remits that touch the sector, but no single body has overarching responsibility. In particular, respondents raised the CCA, prudential regulation, financial conduct regulation, the Consumer Duty, Financial Ombudsman decisions and legislation including common law as notable examples of regulations that influence incentives and behaviours. 

The finance sector emphasised the need for predictability and certainty in the regulatory framework, noting a lack of regulatory clarity, particularly for brokers and lenders operating at the edge of the regulatory perimeter. The brokerage sector suggested that this has led to brokers taking a cautious approach or avoiding entire classes of business to pre-empt changes in future regulatory interpretation. Finance respondents also suggested that the growth in the number of codes and charters applicable to SME lending has increased the compliance burden for firms.

There was some consensus among business support sector and finance respondents that regulatory changes have made securing finance more difficult and technically complicated.

Some finance stakeholders suggested that the Prudential Regulation Authority (PRA) and FCA should consider policy changes that reflect their secondary objective of promoting growth and competition. In particular, finance respondents proposed that less complex and overlapping regulations that strike a different balance between risk, financial stability and customer protection could support lending to SMEs in the UK. One respondent noted the importance of consistency in economic policy, regulation and long-term support schemes to create the conditions for more businesses to consider borrowing.

Respondents’ views on individual regulations were varied, sometimes contradictory, and in some cases have been overtaken by events. The following summaries reflect the feedback received during the call for evidence period. Any significant developments are taken into account in the response at the end of each topic, noting in particular the reforms announced by the Chancellor at Mansion House and the publication of the Financial Services Strategy the summer of 2025.

Consumer Credit Act and Consumer Duty

We received significant feedback on the impact of consumer protection legislation on commercial lending to small businesses. There was a widespread view from respondents that changes in consumer protection and conduct regulation have introduced complexity and prevented certain types of lending to businesses that might otherwise have qualified.

The CCA was raised by both business and finance stakeholders as not effectively meeting the needs of small businesses. Finance sector respondents welcomed the consultation on the CCA, noting that a reformed framework should:

• clarify the regulatory perimeter
• simplify inconsistent definitions across regulatory handbooks
• offer proportionality in application 

There was a broad consensus among the finance sector, including the social lending sector, that the CCA has created a barrier to lending below the amount of £25,000. Lenders outlined the difficulty of providing loans of less than £25,000 to sole traders and unincorporated entities because such loans are regulated as consumer loans under the CCA. Several finance respondents suggested that the CCA should be reformed to reduce complexity of commercial lending for smaller amounts by removing business lending from its scope.

Some lenders noted that the classification of VAT-registered sole traders as consumers further limits access to working capital. Some respondents added that compliance with consumer credit regulation is expensive, burdensome and difficult for specialist business lenders whose customer base will largely consist of unregulated agreements. One respondent also noted that the CCA does not align with digital journeys. 

Respondents from the finance sector also raised the Consumer Duty as a disincentive for lenders which has made recovery more expensive. As such, it was suggested that the Consumer Duty should be integrated in a way that complements the FCA’s secondary competitiveness and growth objective. One suggestion was that the FCA’s reform of its rules following the implementation of Consumer Duty should consider that Consumer Duty and Mortgage Conduct of Business rules and Consumer Credit sourcebook (and related guidance) apply to in-scope business lending. 

The social lending sector raised high-cost online lending as one area where mirroring of the FCA’s consumer credit standard could benefit small businesses by requiring lenders to meet a recommended standard for the display of loan costs.

With CCA reform, the government intends to establish a regime which looks to support growth, innovation and competition, while improving the availability and accessibility of credit for consumers and providing robust protections. The government will set out its position on CCA reform in due course.

Bank Referral Scheme and Commercial Credit Data Sharing

Business and finance stakeholders welcomed the government’s intention to review the BRS and CCDS. Both of these have been published since the government took evidence through this call for evidence on SME Finance, with the CCDS consultation recently closing and the BRS consultation due to close towards the end of this month.

Specific finance sector recommendations for the BRS included proposals to embed intermediary networks such as commercial finance brokers as a core delivery mechanism. There was a broad consensus that the scheme should be expanded to more SME lenders and alternative finance providers, including co-operatives, building societies and CDFIs. While most respondents were in favour of reviewing and strengthening the BRS, one finance sector respondent suggested abolishing the scheme and encouraging the use of open finance as an alternative, to help businesses become finance ready.

There was some recognition that the introduction of CCDS has benefited the market and enabled greater information sharing from banks, but that some challenges remain. Finance respondents suggested that government should review business credit data sharing and support open finance to create a competitive environment for data-driven financial services.

At the same time, business groups emphasised that data sharing should only occur with explicit business consent, and strong security measures must be in place to protect against fraud. Under the current CCDS regime, businesses must consent to the sharing of their data by Credit Reference Agencies (CRAs). BRS is also underpinned by a consent model.

There was also a consensus among the finance sector respondents on the need to improve SME credit and transactional data sharing. Respondents saw potential benefits in enabling businesses to:

• more easily access their credit data
• standardise the data submission to the CCDS
• mandate the inclusion of newer finance providers

The government launched a consultation on CCDS to further explore these issues, among others, in September 2025.

In the context of access to data more widely, some respondents also suggested that the implementation of Smart Data standards for SMEs could enable quicker and easier digital collection of the information required to support their loan applications.

The government recognises the scope to strengthen the BRS to try and better support SME access to finance and has launched a consultation on the BRS. We consider this is complementary to and without prejudice to the development of open finance which remains at a nascent stage. We welcome more detailed feedback on the future construction of both the BRS and CCDS regimes via the consultations that were published in autumn 2025.

Prudential regulation

Lending sector and business representatives both noted that the increase in banks’ capital requirements since the financial crisis and changes to the accounting framework had made it more capital intensive to provide overdraft or term loans, even with the use of physical collateral. While some respondents recognised that regulations like Basel III requirements have strengthened stability, they also suggested changes in risk weights may constrain lending decisions. 

Some respondents noted concerns relating to the impact of prudential regulation on the cost and availability of finance for SMEs. The government is aware that these concerns have been raised previously and welcomes the PRA’s decision to tailor its implementation of the final post-financial crisis reforms to ensure no increase in overall capital requirements for SME lending.

The PRA has been clear that the removal of the SME support factor as part of Basel 3.1 will not lead to an increase in overall capital requirements for SME lending.

More widely, the Financial Policy Committee (FPC) has also announced that it is reviewing its assessment of the levels of capital needed to support UK financial stability. That FPC review will inform the fovernment and the Bank of England’s ongoing work to ensure the prudential framework delivers the optimal balance for resilience, growth and competitiveness, including for SMEs.

Financial Ombudsman Service

Several respondents across the finance sector and among business representative groups provided differing feedback on the FOS.

As described previously, a significant change was made in 2019 to the dispute resolution framework and protection of SMEs, by extending the jurisdiction of the FOS from applying to microbusinesses to cover the majority of SME business lending in the UK. 

Some lending sector representatives suggested that the extension of the remit of the FOS to cover additional businesses without a corresponding extension of the regulatory perimeter had created uncertainty. There was also positive acknowledgement of HM Treasury’s consultation on the legislative framework in which the FOS operates. One finance respondent suggested that the FOS’s jurisdiction should be expanded further to align to the current Companies House definition for Small Companies, although this is notably a matter for the FCA. 

Business representative groups recommended improvements to redress for borrowers, particularly for complex cases above the threshold applicable for the FOS. One respondent also suggested that SME lending would increase if there were improvements to the regulatory framework such that businesses in dispute with their banks were better protected. 

The government notes that more than 99% of UK businesses currently have access to independent dispute resolution through the FOS, without prejudice to the ability to pursue litigation as a means of redress. The 2019 reforms were a significant and historical expansion on the previous dispute regime, which only applied to microbusinesses. In 2023, the FCA conducted a review of its rules extending access to the FOS and concluded that the threshold criteria for SMEs to be able to refer complaints to the ombudsman service remain appropriate.

More widely, the government is considering feedback to its recent consultation on reforming the FOS redress framework and will set out next steps in due course.

Know Your Customer

Several respondents raised KYC requirements, which form part of customer due diligence (CDD), as a further regulatory requirement affecting small business lending, noting that implementation can be time consuming and expensive. There was support among both the finance sector and business representatives for proposals such as:

• enhanced data sharing mechanisms among financial institutions to address fraud
• streamlining of digital identification requirements

One respondent also noted that KYC regulation has created unintended barriers for co-operatives.

The government notes that robust KYC processes are a vital tool in safeguarding against money laundering and terrorist financing, protecting the integrity of the UK’s financial system and its reputation as a global business destination. The government recognises the importance of ensuring these requirements are clear and proportionate to risk and is committed to making them more effective and less burdensome for businesses.

In July 2025 HM Treasury announced a package of changes to the Money Laundering Regulations intended to improve the effectiveness of CDD, clarify trigger points for checks, and produce guidance on the use of digital identity technology. These reforms are designed to streamline KYC processes, reduce unnecessary administrative costs, and support innovation, while maintaining high standards for tackling economic crime.

Challenger banks

We received feedback from challenger banks themselves suggesting that the current regulatory framework restrains their growth and incentivises lower-risk lending. Challenger banks suggested that more proportionate regulations could bring about greater competition in the lending market, by enabling newer lenders to compete on a level playing field with larger banks.

Respondents outlined that the regulatory framework for banks often applies a uniform approach, which may overlook the diverse characteristics and risk profiles of different institutions. They suggested that this is particularly problematic for small and mid-tier banks, which may face higher capital requirements under Basel 3.1 reforms compared with current standards. Several respondents suggested that there was a need for a more tailored capital framework, arguing that small and mid-tier UK banks are at a disadvantage in SME lending due to capital rules that require them to hold more capital than larger banks for similar risks. They suggested this limits their ability to lend competitively, despite strong customer relationships. One respondent also raised the capital add-on that challenger banks receive for only lending in the UK as being an additional barrier. 

The government agrees that tailoring and proportionality of regulations are important and notes that the regulatory framework already consists of a number of different approaches. That is why we have welcomed the PRA’s implementation of a new ‘strong and simple’ framework for small banks which is intended to reduce their operating costs and help them grow and compete.

There was a consensus among respondents on the value of a review of the prudential framework. Challenger banks suggested that the proportionality of the UK’s financial regulation should be reassessed to ensure that the size and complexity of the regulatory burden is appropriate for mid-sized lenders and encourages diversity, competition and innovation. One business representative group echoed this sentiment and suggested giving regulators a mandate to review and adapt frameworks for challenger banks. 

Recognising the positive contribution of the New Bank Start-Up Unit, set up by the FCA and PRA, one respondent suggested that there should be a dedicated team for banks that have moved beyond the start-up phase and are not among the largest institutions. Notably, since taking evidence through this call for evidence, the government has announced that scaling banks and building societies will be given bespoke support to navigate rules and regulation via a new Scale-Up Unit.

The new unit, which will also work with other scaling financial services firms like fintechs from early next year, will make it simpler for firms to get timely responses to regulatory queries and access expert support – so that firms can focus on developing new products, hiring staff, and bringing investment into local economies.

The government recognises that challenger banks now account for 60% of bank lending to SMEs in the UK, and has sought to encourage competition in the market through a range of measures, with a third of new banks since 2014 having been supported by one of the British Business Bank’s programmes. 

We also support the PRA’s development of a more responsive and agile approach to banks using their own risk models which will facilitate more risk-sensitive lending.

The government also notes the steps taken at Mansion House and through the Financial Services Strategy to support the mid-tier banking sector, subsequent to taking evidence in this call for evidence. As previously mentioned, the FPC has also announced a review of the UK’s capital requirements to ensure the prudential framework delivers the optimal balance for resilience, growth and competitiveness, including for SMEs.

Minimum Requirement for Own Funds and Eligible Liabilities (MREL)

Finance sector respondents welcomed the Bank of England’s consultation on revising Minimum Requirement for Own Funds and Eligible Liabilities (MREL) as a positive development. However, many respondents felt there was scope to make further changes as part of the consultation to ensure the MREL regime supported the growth and development of mid-tier and specialist banks.

In July 2025, following consultation, the Bank of England announced several MREL reforms, including an increase in the indicative asset threshold from £15 to 25 billion to £25 to 40 billion. The Bank of England also committed to updating the total assets threshold every 3 years, starting in 2028, if necessary to account for changes in nominal economic growth.

As set out in the Financial Services Growth and Competitiveness Strategy, the government welcomed the Bank’s proposed changes, which help ensure the MREL regime is proportionate.

Open finance

Although the call for evidence did not directly seek feedback on open banking or open finance, we received a notable amount of feedback on how these developments could support small businesses. Responses welcomed the potential for open banking and open finance to facilitate lending and overcome access to finance barriers for small businesses. Open finance can provide useful insights for lenders and allow them to make lending decisions they might not otherwise make, thereby unlocking greater choice for small businesses. 

Some respondents suggested that open banking could support the creation of a centralised platform for small business credit, noting that it could facilitate access by lenders to up-to-date, comprehensive financial data in one place, improving the speed and accuracy of lending decisions. Some also highlighted the need for inclusion of the variety of platforms currently used by small businesses to ensure such a platform provides a full financial picture.

Respondents from the social lending sector suggested extension of open banking to the life of the loan, allowing lenders the same view of bank account conduct that the banks are able to access, noting that this could allow CDFIs to identify signs of business distress at an earlier stage. As per the FCA’s requirements, consent to keep viewing a customer’s bank account is required every 90 days, to increase customer awareness and prevent silent long-term access by third parties.

Among alternative finance providers and non-bank lenders, there was support for the implementation of a digital identity system for SMEs and their directors, with a view that this would:

• reduce fraud
• improve security
• increase trust in digital interactions
• increase the speed of lending decisions

Some finance respondents also mentioned that data records are often inconsistent, especially on account ownership, limiting its usefulness for credit checks and fraud prevention. Notably, the government has sought feedback on policy options to enhance the consistency, accuracy and timeliness of data provided to CRAs as part of its CCDS consultation published in September 2025, and recognises this is a rich data source that may support the development of open finance.

Respondents from the accounting industry suggested that the government should address the barriers affecting the wider uptake of open finance. Drawing on international comparisons, the United Arab Emirates (UAE) was noted as an example of a jurisdiction with an effective consumer-focussed brand for open finance. Several responses referred to the work undertaken by the Centre for Finance, Innovation and Technology (CFIT) on open finance, including the suggestion of an application programming interface (API) with HMRC to enable sharing of VAT returns, indicating that it could have a positive impact on SME loan applications.

One respondent also suggested a roadmap to open finance with appropriate standards and regulations as a lever to encourage non-bank lending to small businesses. The need for awareness-raising initiatives about the benefits of open finance, such as improved financial services and increased transparency, was also underlined by finance sector respondents, including via BGS. We note that this is consistent with a research note published by the FCA in October 2025.

Open finance is a manifesto commitment, and the government will be publishing a Smart Data Strategy which will outline next steps towards the future of open banking and open finance in the context of a Smart Data Economy. We also welcome the FCA’s SME Finance TechSprint, running from November 2025 to February 2026, which is designed to support the future regulatory framework for open finance and test how data sharing can enhance small businesses’ financial lifecycle through open finance and smart data.

Section 3: alternative models of finance

The call for evidence sought feedback on alternative models of lending, including regional mutual banks, drawing on comparisons to other jurisdictions, and on the UK’s growing CDFI sector. We also invited reflections on the finance needs of cooperative and mutual businesses, with a call for evidence exploring how the sector can be supported more widely expected before the end of the year.

Regional mutual banks

Regional mutual banks are profit-making (but not profit-maximising) full deposit-taking institutions with retail and business banking activities. Looking at examples in other jurisdictions, their legal form varies by country, but typically they will have a mandate to invest in businesses even in times of economic downturn. Currently there are no regional mutual banks in the UK.

Regional mutual banks tend to use a blend of financial and non-financial data in making their lending decisions. The latter typically includes assessments of:

• quality of management
• product offer
• business plans

Banking relationships between regional mutual banks and their customers can often last for decades, meaning the banks often develop a deep understanding of their customers’ finance needs.

Several respondents noted that the traditional model of relationship banking has been replaced by algorithm-driven lending, where financial data is often preferred to softer indicators of a business’s creditworthiness such as management capability and business plan. Community focused lenders such as credit unions and building societies, and some banking models, are a notable exception to this trend. However, one respondent noted that the limit on the proportion of business assets that are not secured to residential mortgages is 25%. Respondents also highlighted that the growth of new regional mutual and co-operative banks, as well as new building societies, is limited by perceived high capital requirements and the impatience of venture capital providers who would also expect higher returns. 

In ‘Backing your business’, we also committed to exploring the role that regional mutual and co-operative banks could play in boosting business investment, and we will work with the regulators to ensure the growth of these new models of stakeholder banking is encouraged.

Community Development Finance Institutions (CDFIs)

There was a strong consensus among respondents from all sectors that CDFIs are essential actors in widening access to finance, particularly for:

• businesses in coastal and industrial communities
• women-led and ethnic minority-led businesses
• those with limited access to traditional lenders

Three key themes emerged as fundamental to growing the sector:

• increased capital funding
• capacity-building grants from the private sector
• improvements to the referral process for customers

Capital availability

Respondents recognised the positive impact of the government’s support for CDFIs on the availability of capital for the sector. Respondents from the mainstream finance sector, social lenders and business representative organisations sought continuation of the GGS, which we have placed on a longer-term footing, as announced in ‘Backing your business’.

Respondents similarly supported the continued availability to investors of the Community Investment Tax Relief (CITR) scheme, which encourages investment in disadvantaged communities by giving tax relief to investors who back businesses (and other enterprises) in less-advantaged areas. Social lending sector respondents recommended expanding CITR thresholds by raising the limit that a wholesale CDFI can on-lend to a single retail CDFI to make financing more accessible and larger scale. Finance sector respondents agreed that appropriate lending structures, offering market standard terms that can help crowd-in private finance at scale, can also help to support the sector.

Social lending sector respondents underlined the importance of direct investment of capital by banks, such as through the Community ENABLE Funding (CEF) programme managed by the British Business Bank. CEF operationally launched in May 2025 and is expected to provide a significant boost to the sector, supporting up to £150 million of lending over the next 2 years.

The government recognises the importance of partnerships between CDFIs and large financial institutions to create sustainable investment channels and build investor confidence. A government-backed CDFI Roadmap, led by Responsible Finance and supported by Lloyds Banking Group, will set out our vision for the next 5 to 10 years of the enterprise-lending CDFI sector across the UK. We will seek to facilitate these partnerships to ensure the long-term sustainability and scalability of the sector to unlock growth across all UK regions.

Referrals and awareness

There was a consensus among the mainstream finance sector, social lenders and business representative organisations that there is scope to improve public awareness of the role of CDFIs in supporting SMEs, such as through the small business support ecosystem. BGS currently signposts to CDFIs through the Business Support Service and Growth Hubs, and the link to Responsible Finance’s Finding Finance tool will be made available directly on Business.gov.uk.

Respondents also recognised the potential for signposting activity and referrals to CDFIs by larger institutions such as mainstream banks, which could play a vital role in improving awareness. Respondents underlined the importance of the inclusion of CDFIs when considering changes to the BRS as part of HM Treasury’s consultation. Several finance respondents supported the potential introduction of a formal mechanism to allow an efficient referral from banks into CDFIs and conversely CDFIs back into banks when their business has grown and may then be eligible for bank financing. This could build on voluntary referrals initiatives, which we will seek to strengthen as part of the work on the roadmap for the sector.

With respect to the BRS specifically, the government notes that the scheme neither precludes CDFIs from participating on finance platforms to offer loans, or prevents the financial services sector from referring declined applications to CDFIs so long as they still meet their obligations under BRS. The government is consulting on the future construction of the BRS and welcomes contributions to this policy.

One respondent suggested that the creation of a government endorsed CDFI register would support borrowers and lenders in finding an appropriate CDFI. The brokerage sector also suggested that structured partnerships with brokers can support the sector as part of the wider lender ecosystem.

Capacity building

There was a strong consensus among respondents that CDFIs could be supported more effectively by enhancing capacity building initiatives through the provision of grant funding. We agree that grant funding is key to building capacity in the sector to drive rapid operational scaling, higher lending and improved efficiencies, which also lower the cost of SME borrowing from CDFIs.

Partnerships with banks remain fundamental in building the capacity of CDFIs, particularly where financial institutions may be able to leverage their expertise in financial services to offer advisory services. The British Business Bank is working with the JP Morgan Chase Foundation and Responsible Finance to facilitate delivery of a £4 million philanthropic grant that will support CDFIs in scaling their operations and readiness to take on more funding. Lloyds Bank has committed £43 million to the £62 million Community Investment Enterprise Fund to support SME lending via regional CDFIs. One respondent specifically noted that CDFIs should embrace technology to increase their underwriting and operational efficiency.

Local authority respondents also emphasised the advantages of fostering collaboration with other key players at a regional level. Several responses echoed this view, noting that CDFIs should be promoted within regional finance strategies.

Finally, respondents made comparisons to the United States, which has a significantly larger CDFI sector. Addressing the issues of capital, capacity-building and the customer pipeline, social lending sector respondents noted the Community Reinvestment Act as an important driver of progress for CDFIs in the US, calling for the consideration of similar legislation in the UK. The Community Reinvestment Act was introduced in 1977 in response to perceived discriminatory service provision by US banks, particularly in the context of housing and real estate. The government does not intend to pursue such legislation in the UK, given the differences between the US and UK contexts and banking landscapes.

Finance for co-operative and mutual businesses

Some respondents suggested that a lack of access to mainstream financing has been identified as a barrier for co-operative and mutual businesses. Respondents also noted that discrepancies between registration of mutuals on Companies House and the FCA Mutuals Public Register can make access to their information by lenders more challenging, thereby reducing the likelihood of a positive outcome for finance applications. The Law Commission held a consultation on this issue, which closed in December 2024, and is due to publish a final report in 2026. 

One respondent suggested that co-operatives may be more averse to riskier decisions, such as taking on borrowing, due to their consensus decision making. Furthermore, the democratic control of co-operatives and ownership by their members can create complexities around the use of PGs. There was agreement among respondents that better information and awareness is needed for both co-operatives and lenders on:

• the business model
• how to start-up
• how to convert
• how to access finance

Social lending sector respondents pointed to the expansion of eligibility for certain British Business Bank initiatives as a potential lever to improve access to finance outcomes for co-operative and mutual businesses. This included a proposal of a Start-Up Loan programme variant that is aimed at co-operatives, and therefore not a personal loan product.

Some CDFIs and other social impact lenders have been lending to co-operatives and mutuals. Government-backed initiatives to strengthen and increase the size of the CDFI sector will therefore also have a positive impact on access to finance for co-operative and mutual businesses. One social lending sector respondent suggested that co-ops have different funding needs, such as longer term loans, and that CDFIs lending to these businesses could benefit from greater flexibility under the Community ENABLE Funding programme.

Several respondents drew comparisons with other European countries, suggesting that some provide greater support to co-operatives and mutuals compared with what is available in the UK. One respondent provided the example of the Mondragon co-operative group, based in the Basque region of Spain, as being particularly successful in supporting other co-operative businesses to thrive by facilitating both business support and finance. Italy was noted as a further example, where mutualisation of existing businesses is enabled through coordinated specialist business advice and institutional finance.

The co-operatives sector also advised that in Europe there are mutual guaranteed societies, wherein SMEs are members of mutuals through which they pool risk to offer partial guarantees on each other’s borrowing. One respondent also shared the example of Grameen Bank, providing business loans alongside financial education, peer support and credit and asset building. This model originated in Bangladesh and has been replicated in the US, where it has been particularly supportive of female entrepreneurs.

Section 4: underserved entrepreneurs

As part of the call for evidence, the government sought feedback on the challenges faced by underserved entrepreneurs in accessing finance with a focus on:

• women
• ethnic minorities
• disabled entrepreneurs
• those whose businesses were in deprived areas

The overarching message from respondents was that underserved entrepreneurs face persistent and disproportionate challenges in navigating the business landscape with the current ecosystem failing to adequately meet their needs. Examples were shared of risk-aversion resulting from discouraging experiences and messaging from financial and business support providers.

Many respondents suggested that underserved entrepreneurs are reluctant to take on debt due to:

• concerns about repayment
• personal liability
• opaque loan terms

This fear drives some entrepreneurs to avoid traditional banks altogether, turning instead to alternative lenders or short-term credit options like revolving personal or business credit cards, which appear to them less risky despite their limitations and unsustainably high interest rates.

Respondents broadly endorsed the recommendations of the Alison Rose Review (2019) and CREME’s Time to Change report (2022), which offer comprehensive strategies to improve access to finance and support for women and ethnic minority entrepreneurs respectively.

International comparisons

The call for evidence received several examples from other jurisdictions of improving SME access to finance for underserved groups, through integrated support systems and non-bank lending:

• France – bpifrance: a state-owned investment bank providing tailored finance and business support to SMEs and startups

• Netherlands – Qredits: a non-profit microfinance lender offering loans, coaching, and mentoring to underserved entrepreneurs 

• United States – Women’s Business Centres: government-backed centres offering targeted support for women entrepreneurs 

• Canada – Women Entrepreneurship Strategy: provides capital funding and business development programs for women-led businesses

Data collection

There was a consensus among different respondents that collecting data on underserved groups, particularly in relation to ethnicity and disability, remains a significant challenge. This is due to factors such as:

• underreporting
• vague or inconsistent classifications
• mistrust rooted in systemic discrimination
• complexities introduced by intersectionality

To address these issues, business representative groups suggested that banks could be required to publicly report lending data disaggregated by region, gender, ethnicity, disability, and socio-economic status which could help identify and address disparities in access to finance. Banks noted that they do not collect such data from their customers and highlighted the impact on the customer journey and perceived intrusiveness if they were to do so. 

Finance sector respondents also emphasised the importance of giving lenders the time and flexibility to demonstrate the impact of their inclusion initiatives, without overburdening them with conflicting and overlapping compliance requirements. 

Several respondents recommended that initiatives like the Investing in Women Code should expand data collection efforts to include other protected characteristics. Enhancing the utility of Companies House data by including ownership demographics was also suggested, as this could help pinpoint disparities and inform targeted strategies to promote equality. 

As we have said in ‘Backing your business’, the government will improve data collection and transparency on underrepresented businesses across public bodies. DBT will explore new ways to collect more granular data on underrepresented businesses at scale, making better use of existing data sources and data collection processes. Programmes managed by DBT will progressively introduce the voluntary collection of data on ethnicity, gender and disability and use the data to evaluate the reach of these programmes. The government will ensure that business support programmes forming part of the new BGS are inclusive and accessible for all entrepreneurs.

Business support services and awareness of finance options

To support diverse entrepreneurs, respondents advocated for the development of peer networks that connect entrepreneurs with mentors, role models, and industry leaders, in addition to further support for community-based organisations that offer culturally relevant business support. Respondents recommended increasing representation of underrepresented groups on the boards of funders and decision-makers.

Among suggestions for action that could be taken forward by lenders, streamlining loan application processes and providing dedicated support throughout these processes were highlighted as key steps to improve access to finance. 

Respondents also proposed promoting alternatives to traditional debt financing, such as grants and patient capital, alongside the provision of small-value, flexible loans (under £25,000) tailored to the needs of early-stage and underserved entrepreneurs. 

Measures to improve financial literacy overall would be beneficial to underserved entrepreneurs, as this is often cited as one of the main barriers to accessing finance. For example, under BGS, the Business Academy launched a series of virtual events in September 2025 on:

• the types of finance available
• how finance can be accessed
• best practice for completing grant applications
• how to get a business ‘investment ready’

These sessions were supported by expert speakers from industry with a particular focus on securing female, disabled and ethnic minority speakers. The Business Academy is also working with the Growth Hub network to ensure it effectively enables the participation of businesses from rural and deprived areas. 

Growth Hubs offer a variety of dedicated support for underserved entrepreneurs. Some examples include: 

• The Cambridgeshire and Peterborough Growth Hub, which offers specialist support programmes including a Women in Business Accelerator, Minority Ethnic Business Growth Programme and a Disability-Inclusive Enterprise Support Pilot, developed in partnership with local disability advocacy groups​ 

• The Cumbria Business Growth Hub continues to work with The Growing Club to specifically support new female entrepreneurs 

• Business Growth West Midlands has invested in community-based venues and organisations, usually in underserved areas, to take the service out to businesses who may not access it ordinarily 

The government’s commitment to the growth of the CDFI sector will also enhance access to finance for diverse entrepreneurs, given that CDFIs have such a strong track record of lending to businesses led by women, members of an ethnic minority and entrepreneurs with a disability.

Women entrepreneurs

A significant number of respondents highlighted that women entrepreneurs face multiple barriers to accessing finance that are often rooted in structural and cultural factors rather than a lack of ambition. Respondents emphasised that many women entrepreneurs never seek external finance, instead relying on self-funding. This is often driven by a strong desire for independence and a preference for familiar, seemingly safer lending options. However, this reluctance is further compounded by gaps in financial literacy, highlighting the need for tailored financial education from an early age. Resources such as the Invest in Women Hub are available to support women-led businesses seeking information and finance. 

Government schemes such as Help to Grow have also been criticised for inadvertently excluding many women-led businesses. For example, eligibility criteria requiring more than 5 employees disproportionately affect smaller enterprises, which are more likely to be run by women. 

Respondents suggested several ways to address these challenges. These included offering more flexible lending options such as capital repayment holidays which can be particularly beneficial for entrepreneurs with family care responsibilities. While some banks already offer such features, respondents noted the need for better promotion and easier access to maximise their impact. We note that in the Plan to Make Work Pay, the Government committed to a review of the parental leave system, which launched in July 2025, and will explore how the system can better support working families.

In addition, respondents called for more accessible networking opportunities, particularly for women located outside major financial hubs.

There was also strong support for launching a dedicated funding programme for women entrepreneurs, underpinned by gender-conscious investment strategies. The Invest in Women Taskforce is raising such a fund in the UK and further announcements on this are expected shortly. The government will continue its active support of the Invest in Women Taskforce’s actions particularly in the areas of data collection, Angel investment, supporting the growth of women-led scale-up businesses, and growing the number of women-led investment funds.

On 22 October 2025, the Women and Equalities Committee published its report on female entrepreneurship. This made several recommendations aimed at realising the opportunity first identified by the Rose Review in 2019, that £250 billion of new value could be added to the UK economy if women started and scaled new businesses at the same rate as men. The government’s response to this report will also be published shortly.

Disabled entrepreneurs

According to respondents, disabled and neurodiverse entrepreneurs face significant and often systemic barriers to accessing finance and business support. Complex application processes, inaccessible pitch formats, and unclear eligibility criteria frequently exclude these individuals. Additionally, ongoing disability-related costs and the fear of losing benefits further discourage engagement with financial services. 

Business respondents highlighted that many disabled entrepreneurs are less likely to seek investment or use professional business advisors due to a lack of accessible services. Some also suggested that the benefits system penalises those transitioning into self-employment. Support is often reduced based on business income rather than personal income and entering entrepreneurship can trigger reviews of disability benefits. This creates a disincentive to pursue self-employment and contributes to high business failure rates within the first year. 

To address these challenges, respondents called for the Disability Finance Code to be expanded to include:

• inclusive design principles
• skills development
• scaling support
• improved accessibility

The government will continue to grow the reach and impact of the Disability Finance Code for Entrepreneurship, working with UK Finance, British Business Bank and the wider sector to increase sign-up and strengthen commitments. More widely, the government has recently published its Financial Inclusion Strategy. Among other things, this strategy seeks to make personal financial products more accessible for underserved or excluded consumers, via a new government-backed working group specifically on inclusive design.

Ethnic minority entrepreneurs

Respondents identified several barriers that ethnic minority-led businesses face when accessing finance. These include communication challenges such as:

• language differences
• cultural misunderstandings
• a lack of confidence that financial services providers understand their needs

Some respondents noted that finance providers may also lack awareness of the cultural and religious contexts in which these businesses operate. 

Respondents flagged that this disconnect can create unintended barriers throughout the customer journey. For instance, ethnic minority-led businesses often rely on cash or community funding, which can complicate credit assessments when seeking mainstream finance for the first time. Limited awareness of how to access financial services further discourages engagement and reinforces perceptions that these services are not designed for them. Respondents suggested that even when businesses do approach providers, a lack of staff diversity, especially in diverse areas, can undermine trust and confidence. 

To address these issues, there was support for consistent standards and measures to foster greater inclusivity across the financial ecosystem. Business representatives also recommended launching a dedicated funding programme using ethnicity-conscious investment strategies, ensuring that funding decisions reflect the unique challenges faced by ethnic minority entrepreneurs.

Additionally, the introduction of Islamic finance-compliant loan options was proposed to better serve Muslim business owners and support diverse business communities. 

Respondents highlighted that improving outcomes for ethnic minority-led businesses would require concerted action from the financial services sector. This includes increasing awareness of their specific needs and using that understanding to provide better support throughout the customer journey. Tailored resources such as mentorship and professional guidance can help these businesses navigate the lending process and build confidence in demonstrating their viability. By acknowledging the distinct challenges ethnic minority-led businesses face and committing to inclusive practices, the financial services sector can build trust, remove barriers, and improve access to finance. 

The government will continue to work with CREME, as well as finance providers and ethnic minority businesses themselves, to address the issues highlighted by respondents.

Other underserved groups

Respondents highlighted the importance of recognising and supporting a wider range of underserved entrepreneurs. Groups identified include:

• young entrepreneurs
• microbusinesses
• cooperatives and mutuals
• early-stage founders in technical sectors particularly those without corporate backgrounds
• start-ups with limited trading history
• businesses operating outside major urban centres 

A specific issue affecting microbusinesses was their requirement for finance below £25,000. For businesses up to 3 years old, the British Business Bank’s Start Up Loans programme offers personal loans for business purposes up to £25,000. For longer-established businesses, social lending sector respondents proposed the creation of a dedicated guarantee scheme or first-loss funding mechanism specifically for loans under £25,000. Additionally, grants for mentoring and funding for blended finance models were recommended to help these businesses access appropriate support. 

The government will ensure that the diversity of business owners and business forms is reflected in the support offered by BGS. The British Business Bank will change eligibility for Start Up Loans from 3 years to 5 years from April 2026, making this offer available to additional business that would not currently qualify.

1. Rachel Reeves Mansion House 2025 speech, GOV.UK ↩