Theodora Hadjimichael, Responsible Finance CEO, on how our inclusive members can make CBILS reach parts of the economy otherwise excluded
The Coronavirus Business Interruption Loan (CBIL) Scheme continues to draw the opprobrium of some commentators, with reports of some businesses told by mainstream lenders they can’t access finance through a CBIL and others describing lengthy waits.
The current small business climate certainly presents a huge challenge for banks, as many enquiries will be outside the scope of what they can lend for – both in terms of risk profile and loan size. Over the next 6 months we anticipate a £100 million gap in the market for businesses seeking less than £50,000 in working capital.
But there is an effective, tested way to ensure CBILs reach small businesses desperate for working capital to survive the current pressures. Sixteen Community Development Finance Institutions – our members – are already accredited to deliver the Coronavirus Business Interruption Loan Scheme and we are committed to making it a success.
Since the scheme launched we have seen unprecedented levels of demand. Accredited CDFIs have lent £7 million to over 100 small businesses in the last three weeks – over double what we would normally lend in this time period. We’re acting rapidly and responsively to protect businesses and jobs.
The sums may appear small but they make an enormous human impact, supporting entrepreneurship and creating jobs in communities under-served by mainstream providers.
Social enterprises themselves, CDFIs are experts at assessing risk in businesses that banks have already said ‘no’ to, then helping them thrive. And we are making a disproportionate number of CBILS loans, despite our extremely limited capital base.
During the financial crisis we stepped in to protect jobs and strengthen communities when banks withdrew credit from small businesses. Now, without our support, thousands of independent, small and micro businesses could close, costing thousands of jobs and devastating towns, cities and communities.
But to ensure CBILS loans reach the whole economy we make one small ask of the Chancellor so we can accelerate access to capital for small businesses around the country: the Government should launch a £30 million CDFI fund, to be used alongside CBILS.
A relatively small addition to the government’s bold Covid-19 response, this would have a powerful effect, especially for microenterprises and small SMEs seeking under £50,000 which are often perceived as higher risk by mainstream lenders.
It would also lever further investment – the government’s 2011 CDFI Regional Growth Fund (RGF) grant of £30 million catalysed £100 million in lending through leveraging bank investment and recycling into new loans.
The CDFI sector already has the infrastructure in place to deliver funds immediately, and a long track record in providing access to finance to businesses banks cannot reach.
At a critical time for small businesses who need capital to survive, this solution would make a huge step to address the £100 million gap.
Photo: Theodora Hadjimichael of Responsible Finance.
What next?
- Media outlets are welcome to quote Theodora’s comments. If you would like more information or to arrange an interview with Theodora, please contact Jamie Veitch on 07904 272 200 / [email protected]
- Case study: Funding Lifeline for Ecological Housebuilder.
- Chief executives of our member CDFIs (based all over the UK) are also available to offer comment regarding access to finance for small businesses and social enterprises. To request a comment or interview please contact Jamie Veitch as above.
- Details of the scheme including links to delivery partners are available from The British Business Bank.
The scale and scope of the UK’s responsible finance sector:
- In 2019, responsible finance providers lent £171 million to thousands of credit-worthy businesses and social enterprises rejected by or unable to access finance from mainstream lenders.
- 3,400 businesses were created thanks to this lending.
- 13,800 jobs were created and protected in businesses and social enterprises.
- Responsible finance providers, otherwise known as community development finance institutions, lend to viable but under-served businesses and social enterprises (and to financially excluded individuals).
- The average size of a responsible finance loan for an existing SME was £44,950 over 4.1 years, and businesses borrowing from enterprise-lending responsible finance providers reported an average £320,000 increase in turnover.
- Transparency and affordability are key to these FCA-regulated providers, which will not lend to businesses or social enterprises unless it will increase the business’ chance of success.