Community Investment Tax Relief (CITR) expansion will help close finance gap

A budget update from Responsible Finance.

In yesterday’s Budget the Government has announced an expansion in Community Investment Tax Relief, a targeted intervention which increases access to finance for SMEs, social enterprises and charities by stimulating private investment in disadvantaged communities.

The announcement follows the Budget Representation we made to HM Treasury in February 2023, which called for extensions to Community Investment Tax Relief (CITR) to make the scheme more effective. Having worked closely with Treasury for several months we are delighted the Government has acted – we estimate the changes could add a further £20mn of annual lending capacity to small businesses in deprived areas and enterprises led by individuals who face high barriers to finance.

CITR improves the supply and reduces the cost of capital to CDFIs; it can help CDFIs reduce their lending costs and increase the provision of business support they provide to borrowers.

The amount Community Development Finance Institutions (CDFIs) can lend to eligible businesses is to increase from £250,000 to £375,000 for non-profit organisations and from £100,000 to £250,000 for profit organisations. In addition, the amount accredited CDFIs can raise through CITR will increase from £10 million to £25 million for retail CDFIs and from £20 million to £100 million for wholesale CDFIs.

Theodora Hadjimichael, CEO of Responsible Finance, said:

“Wherever they live, ambitious entrepreneurs need the right kind of finance at the right time to start or grow their businesses. Not-for-profit Community Development Finance Institutions (CDFIs) are recognised for ‘outperforming banks’ in lending to the UK’s most deprived areas and financing under-served businesses.

“Community Investment Tax Relief is an important tool to help CDFIs raise funding for social impact lending. The terms of CITR had not changed since 2002, so today’s announcement will make the scheme even more effective. We are excited to continue closing the finance gap and unlocking the untapped economic potential laying latent in our more deprived areas.”

What next?

• 94% of the business' our member CDFIs lend to have been declined by another lender.
• 9 out of 10 of those businesses go on to be a huge success, many becoming banks’ future customers after we have supported them.
• There are approximately 50 CDFIs serving areas across the UK, with over 95% of lending taking place outside London.
• The British Business Bank (BBB) 2022 Nations and Regions Tracker stated “evidence suggests CDFIs outperform banks” in lending to the UK’s 35% most deprived areas.
• Read our Spring Budget Representation here.
• Learn more about some of the thriving businesses creating jobs and opportunities with CDFI finance here.

This article first appeared on the Responsible Finance website.