What the government's latest lending reforms mean for small businesses

Chancellor Rachel Reeves and Business Secretary Peter Kyle have unveiled what the government is calling the “most significant” package of small business lending reforms in years. 

Announced ahead of the Mansion House speech — a major annual address delivered by the UK Chancellor of the Exchequer — the proposals outline a blueprint to scale up government-backed lending and increase the finance available to UK SMEs

Access to finance has long been one of the toughest barriers faced by the UK’s small and medium-sized enterprises (SMEs). In fact, the government has highlighted a staggering annual funding gap of between £1.6 billion and £4.1 billion between the finance SMEs need, and what is actually currently available to them.

The proposed reforms aim to narrow that gap by making government-backed lending more accessible to growing businesses.

At the centre of the changes is an expansion of the British Business Bank’s Growth Guarantee Scheme, which provides a 70% government guarantee on commercial loans to SMEs of up to £2 million.

The expanded scheme is set to support an additional £2 billion of lending every year by 2028/29, more than doubling the amount of lending backed through the programme. The government estimates this could increase the number of businesses supported each year from around 8,000 to 20,000.

For business owners, one of the most significant planned changes is that some loans will be available over a longer period. The maximum repayment term for loans of up to £1.1 million is set to increase from six years to 10 years, which will help reduce monthly repayments.

Eligibility is also set to be widened. Businesses with annual turnover of up to £54 million will now be able to access the scheme, compared with the previous £45 million limit. 

And the reforms will go beyond traditional lending, too. 

The government has earmarked £500 million through the British Business Bank's ENABLE Guarantee programme to help innovative businesses whose value lies in intellectual property rather than physical assets. These businesses can often struggle to access finance because they have fewer tangible assets to offer as security.

Smaller exporters are also set to benefit from a new portfolio guarantee scheme delivered jointly by UK Export Finance and the British Business Bank. Scheduled to launch in spring 2027, the aim is to make it easier for businesses to access finance as they expand into overseas markets.

Additional support is also being directed towards community lenders that work with businesses unable to secure funding through mainstream banks. The government plans to scale up Community Development Finance Institutions (CDFIs) – independent lenders that invest in local businesses that traditional banks may deem too risky. 

Under these plans, a Community Finance Taskforce will publish a formal roadmap in early 2027, which will include proposals to automatically signpost small businesses rejected by high-street banks towards local CDFI lenders.

International banks including JPMorganChase and BNY have also committed £10 million in philanthropic funding to help build the capacity of the community finance sector, with the aim of unlocking £1 billion of new SME lending over the next five years.

However, while these reforms are undoubtedly significant, they won't automatically make borrowing easier for every business.

Government-backed lending still requires businesses to meet lenders’ eligibility and affordability criteria, and approval is never guaranteed. And while the government's guarantee reduces the risk for lenders, businesses will still need to demonstrate that they can comfortably repay what they borrow.

As access to finance expands, understanding what options are available will remain crucial for small businesses. money.co.uk’s free business loans eligibility journey allows SMEs to see the finance options they could be eligible for before applying, with no impact on their credit score, helping business owners make more informed decisions about their next steps.

For many small business owners, securing finance can be the difference between standing still and taking the next step. These reforms won't remove every obstacle, but they should make it easier for more businesses with viable growth plans to access the capital they need so that they can invest with confidence.