Partner Article

Funding for Lending needs a re-think

This week we saw more disappointing news on the government’s Funding for Lending Scheme. Net lending by banks and building societies fell by £300million in the first quarter of this year.

It’s clear that we need to fundamentally re-think how we get funding to small businesses. FLS has failed to address the pressing finance needs of microbusinesses and SMEs. The result? On-going economic flatlining. And simply extending the time frame for FLS will do nothing – we need systemic change.

The banks have been dealing with the legacy of the financial crisis. They have been re-focusing their activities and stabilizing their structures. But they’re simply not in the right shape or position to lend to the diverse and disparate enterprises that are unable to access the finance they so urgently need.

So rather than lambasting the banks each time FLS figures are released, it’s the government that must re-focus – on a tried and tested method for getting finance to small businesses.

Community Development Finance Institutions (CDFIs) have the history, expertise and inclination that’s needed. They may be small, but they are dynamic, responsive and can reach the places that banks can’t. And they have a track record of lending over £1.1 billion.

CDFIs have seen soaring demand, and lent to 33% more businesses in the first quarter of 2013, compared to the previous quarter. They understand the true meaning of funding for lending. They have proved themselves able to lend – quickly and efficiently - to businesses all over the UK by deploying a mix of government backed and private investment.

Take the Start-Up Loans programme. It is held up as an example of a government scheme that is succeeding in its aims of funding business start-ups. This is in no small part due to the 20 CDFIs that are delivering the scheme on the ground. They are using their responsible lending approach and experience of supporting and mentoring entrepreneurs to turn business ideas into reality. In just a few months they have invested in hundreds of retailers, electricians, web developers, caterers, designers and couriers to get them up and running.

The Bank of England has said it expects net lending to increase gradually over the year. Not enough! That’ll simply be too late for business owners that have found themselves shut out from their usual sources of credit.

So if Vince Cable is looking for the right mechanism to deliver his business bank he should look to us, and do so now. CDFIs can provide a nimble and quick response – to really build local economies.

This was posted in Bdaily's Members' News section by CDFA (Community Development Finance .