The difficulties faced by small businesses in getting bank finance are well documented. Government initiatives to tackle the problem, such as Funding for Lending, are simply not having the required impact.
Rather than waiting for the government, or banks, to find the means and the money to help more small businesses, a crowd of small businesses has sprung up with a solution. They provide loans to other small businesses. The loans are fair and responsible, and it’s as simple as that. Some ‘sprung up’ many years ago – but they have never been more needed. And as small businesses themselves, they are perfectly placed to understand what is needed, and provide a quick, tailored response.
These small businesses are known as CDFIs (community development finance institutions). They use loans, grants and investments to provide loans to entrepreneurs, SMEs and social enterprises that are unable to get finance elsewhere.
Lisa Greenhalgh of Merseyside Special Investment Fund, a Liverpool-based CDFI says, ‘Many people with good business ideas and existing small businesses that need funding to grow continue to be turned down for finance by traditional lenders. In many instances this is due to factors such as insufficient track record, poor credit scores or plans which lenders feel are too risky. Also, regardless of the opinion of their bank manager, national bank policies may impact the lending decision, such as sector exposure.
‘CDFI’s are much more flexible and fill this funding gap, providing a vital source of finance without which many businesses would not be up and running or expanding.’
In fact, 8,400 small businesses are up and running thanks to getting a CDFI loan last year. Over sixty CDFIs operate around the country. And as Ian Smallwood of Let’s Do Business Group in Hastings points out, small can be beautiful: ‘One great benefit is that CDFIs tend to be local and operate in the same environment as the businesses that are applying for finance. Their staff know and understand the local economy, the positives and the negatives. They often have the ability to refer or signpost to other sources of finance that may be available locally.’
CDFIs are independent, and are focused on supporting local businesses, local jobs and the local economy. So they can be flexible in their approach, helping to match fund alongside banks or crowdfunders, providing the full funding – up to £100,000 in some cases – or just giving advice and support. There certainly isn’t a culture of ‘computer says no’.
Neil Millington of First Enterprise Business Agency in Nottingham adds, ‘A CDFI is more approachable, willing to listen and support the proposal and find a way to help a business not find a way not to help. We have a great knowledge of the SME sector and do not adopt a blanket approach with all propositions we assess each case individually on its own merits.’
CDFIs may be small but they’re also ambitious. Many are expanding the range of products and services they offer and are keen to help more businesses.