07.06.2013
More and more firms are slipping into the category of ‘the unbankable’. But there is light – and money – at the end of the tunnel for these businesses.
Bank of England figures revealed that bank lending to businesses fell in the first quarter of this year by £5billion. There are many sound businesses who could previously get the credit they wanted from their bank, but who are now being turned down. Business Secretary Vince Cable has criticised the big banks for not lending to small businesses and has set up his own ‘business bank’ to tackle the problem.
But where can the unbankable go right now for their finance?
There are a host of new companies springing up to serve this new market – through the crowd, invoice discounting or asset finance.
And there are a host of social lenders (CDFIs) that are helping local businesses that want straightforward loans. There are 60 CDFIs around the country that have been set up to help those that the banks won’t. They were typically set up to help the most risky businesses, start-ups, sole traders and micro businesses (employing less than ten staff). They typically supported business in deprived areas, and lead by people from disadvantaged groups. But things are changing.
In 2012 CDFIs saw a spike in demand from SMEs (businesses with 10 to 250 staff) – the previously bankable businesses. Enquiries from this market shot up by 150%.
CDFIs are adapting to meet the needs of these new clients. They are based in all areas and, on average, are seeking four times as much finance as sole-traders and microbusinesses.
One of the CDFIs that’s witnessed the growth in demand from SMEs first hand is Donbac. It has been around for over twenty years and provides advice and support to new and existing businesses in South Yorkshire. Arthur Foreman is Managing Director and says,
“We are seeing a lot more applications for loans from SMEs. They are very good quality applicants, and we’ve had to take on additional staff to cope with the demand.”
In the first three months of this year Donbac lent over £500,000 to local businesses, ranging from £1,500 to £75,000, and are still seeing record levels of demand.
Arthur continues: “We’ve had quite a lot of approaches from environmental companies and online businesses. But the demand really is from all sectors. We’ve supported architects, a bakery, retailers, engineering companies, a software developer and a graphic designer, a dental laboratory and a kitchen installer.”
Team Cooper is a BAFTA-nominated digital agency that recently found itself ‘unbankable’. It specialises in the design and build of quirky digital amusements such as browser games and Facebook apps, and its client list includes the likes of the BBC, Sky, Al-Jazeera and Nickelodeon. As the company grew so did the size of its clients and contracts – and the gaps between incoming payments. The company needed help to grow and manage its cash flow. Unable to get finance from the bank it turned to Donbac. The loan from Donbac enabled Team Cooper to grow, take on new staff and new clients.
Unfortunately many SMEs still don’t know about the alternatives to bank finance. Last year, CDFI customers heard about them from a wide range of sources. Only 8% of business customers were referred from banks.
There are a whole variety of reasons why banks aren’t lending to these businesses. And a whole variety of reasons why they should be helping these businesses find an alternative.
That’s why the CDFA is working with the British Bankers’ Association to develop a national bank to CDFI referral scheme. It means that unsuccessful business loan applicants will be referred to an appropriate CDFI. The big five high street banks are currently piloting the scheme. It’s an exciting initiative that could transform the fortunes of thousands of SMEs. It’s partnership working that makes complete sense. It’s light at the end of the tunnel.
This blog post by Sam Collin originally appeared in the Information Daily.