150 per cent more SMEs have approached community finance providers for funding this year - but who exactly are these "ethical lenders"?
The work of community finance providers is so stealth that the running joke at the annual Community Development Finance Association (CDFA) conference, held on the the fourth and fifth of October in Solihull, was, “Nobody knows who we are, anyway.”
Yet, these self-proclaimed “unsung heroes of the financial sector” are lending more to businesses struggling to access finance than ever before – enough so that demand outstripped supply by over seven times this year.
After ten years of activity in the UK, community finance providers don't only offer financial help to those who find it hardest to reach anymore. Their traditional reach – sole traders, micro-enterprises, unincorporated ventures – has widened to businesses with up to 500 employees. In response to contracting bank lending, 150 per cent more enquiries from SMEs are reaching them now than a year ago. Last year, community finance providers lent £30m to about 2,600 businesses, according to research by the CDFA.
“We pick up those that are rejected by the banks,” said Jonathan Diggines, chair at the CDFA and chief executive at Enterprise Ventures, at the annual gathering in Solihull. “We are the embodiment of community investment and support. Demand is soaring, charities are under great pressure, and we have to get capital flowing to meet new demands.”
Business Secretary Vince Cable did get the implied capital flowing the very same day, launching a £60m pot of Regional Growth Fund investment to community finance providers.
"The big gap between demand and supply creates a need of which CDFIs [community development finance institutions] are part of the solution,” Cable said in a keynote at the CDFA annual conference. “They are best placed to ensure that the £60m goes to those SMEs that will create jobs and unlock private investment.”
It is interesting that half of this investment was provided by the Co-operative Bank and Unity Trust Bank – a move that underlines the icy mood towards traditional high street bank lenders that could be felt at the event.
Similarly to challenger banks such as Co-operative, community finance providers pride themselves in making loans in traditional, personal ways, meeting clients face to face and getting to know the business or lender, to work out flexible loan terms, before agreeing to fund.
The Big Five, most delegates seem to believe, should re-think their client base. The Baroness Kramer of Richmond Park explained in a heated panel, “High street banks are absolutely convinced that they are banking every small business that is bankable, but I stumble upon solid businesses who cannot get access to finance all the time.
“You can see what that demand is like. For the high street banks, small businesses and vulnerable communities will never be their client base – I just wish they'd say it. They're not the appropriate institution to do relationship banking.”
Are CDFIs? The CDFA research presents figures showing community finance providers received around 13,000 enquiries from businesses requesting a total of £231m in a year, which created or safeguarded 8,300 jobs. Most of those loans were made to underserved communities – startups, unemployed individuals and micro-enterprises. However, providers could only serve some 37 per cent of customers; demand soared by 119 per cent last year.
Now that community finance is beginning to reach out to mid-sized businesses, serving the demand - and lending ethically - will become more difficult. That is, as long as lenders remember that community finance providers are a part of the funding world. "Maybe we should re-name ourselves as 'community banks'," a delegate told me, "or just start doing some marketing."
Photo via Flickr / Liberal Democrats