FEATURE FOCUS: FINANCE
VIEW FROM THE CLASSROOM
Funding futures: supporting schools with smarter lending
Education Today hears from TIM O’DONOVAN, Relationship Manager at Allica Bank A
cross both the public and private sectors, education businesses like many others are finding themselves under financial pressure. In the private sector, the end of VAT exemption has seen pupil numbers in England fall by around 11,000 compared with the same period the previous year – a 1.9% drop. In the state sector meanwhile, growing demand for places combined with staff shortages, rising costs, and tightening budgets, has left many struggling to find the resources they need to succeed.
This isn’t just testing business models but also morale. Recent findings from a NEU survey revealed that almost two thirds of teachers felt that stress affects them more than 60% of the time, with 75% saying they are regularly unable to switch off from work when at home.
Independent schools have found themselves in a similar boat, with the NEU highlighting that one in five Independent school teachers have seen redundancies linked to the VAT policy in their own workplace. More than a quarter reported recruitment freezes, while nearly a third of teachers admitted to have taken on extra paid work to manage the cost of living. Conversations I’ve had with smaller schools in particular show that the combination of reduced fee income and higher operating costs is proving hard to handle. The upcoming closure of The Dorchester Opportunity Group, a specialist pre-school in Dorset, shows just how acute this challenge has become for some in the education sector. After running for more than 30 years, they revealed the service was no longer financially viable and despite discussions with the council, they had not found a way forward.
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Many education businesses also face the task of carrying out large projects to upgrade their environments – whether that be new classrooms, technology upgrades or building repairs. In fact, analysis earlier this year found that around 1.6 million pupils in England are learning in unfit school buildings. Raising the money needed to support these improvements can be extremely challenging, however.
Whenever I’m out meeting the people running these schools, they always tell me the same: they’re keen to invest, whether that’s increasing pay to improve staffing and retention, upgrading and repairing facilities, or providing greater support systems for pupils. However, despite being viable and vital businesses, many within the education sector are not getting the support they need from banks.
Funding futures
The concerns we’re hearing from education leaders points to something much deeper beneath the surface.
Recent research from my own team at Allica Bank has revealed that the UK has some of the lowest rates of business lending in the G7. The last three decades have seen business loan rejection rates rise sharply from between 5 and 10% to 40% today.
This has led to an overall business lending gap in the UK of £65 billion, with the education sector seeing a steep decline in lending to small and medium-sized enterprises (SMEs) since 2016. Loans sat at £15 billion at the end of 2024 – down 12% over the period. Had lending followed historical trends, the sector would have seen 34% more funding in circulation.
November 2024 2025
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