Highlighted concerns from 2 Reports about Borrowing Post Covid - SME’s

Firstly, The Report from the All Party Parliamentary Group (APPG) on Alternative Lending May / June 2020 - included the following about SME’s.

The report was intended to help with the response to Covid, so that borrowers are better protected and adequately served, and able to play an active part in our economic recovery.

Despite positive sounds from the Treasury at the time of the evidence sessions, ministers have since announced there will be no Bank of England funding for Non-Bank Lenders (NBL’s). 

In their view this is an oversight. 

NBLs are the ‘small boats’ that provide working capital to millions of small and micro-sized businesses, who banks won’t touch. 

Their inability to lend due to lack of funding would significantly hamper the recovery.

Secondly, in the summer, the Responsible Finance Association issued the following Representations about “the need to Commit to Investing in Community Development Finance Institutions (CDFIs) to prevent Unemployment and stimulate Job Creation in SMEs which fall between the Cracks”

CDFIs prevent and reduce unemployment by supporting businesses, fostering inclusive growth, boosting productivity and facilitating enterprise creation. 

They are key strategic partners for the Government and the British Business Bank, and the sector needs urgent access to low-cost funding to serve demand for SME finance and ensure the UK’s recovery is sustainable and inclusive. 

Pre-emptive, forward looking and long-term policies will be most effective as we look towards our recovery from the COVID-19 pandemic. 

The Community Development Finance Institution (CDFI) sector needs access to £100 million of low-cost funding to enable it to continue its CBILS lending to serve demand, stimulate job creation and prevent unemployment. The Government’s commitment in tomorrow’s Summer Statement to unlocking this capital will be essential and will help to realise our shared vision of the UK emerging from this crisis fairer, more equal, and more resilient. 

CDFIs are social enterprises which lend to businesses which ‘fall between the cracks’ and are unable to secure finance from banks and other lenders. 

In 2019, 93% of viable businesses CDFIs lent to were previously declined by a mainstream bank. 

There are very few lenders outside of the CDFI space which would consider supporting the borrower profile that CDFIs serve, and those that do charge prohibitive rates of interest, so if a CDFI doesn’t step in then the business will likely fail. 

Just Seventeen CDFIs delivered the Coronavirus Business Interruption Loan scheme (CBILS). 

They target pockets of deprivation across the UK and have a strong presence  in the Northwest, Yorkshire and the Humber and West Midlands. 

They are key strategic partners for the British Business Bank, delivering both the essential Start Up Loan scheme as well as the Northern Powerhouse, Midlands Engine and Cornwall and Isles of Scilly Investment Funds. 

59% of CDFI loans are made to businesses located in the UK’s 35% most disadvantaged areas, 42% are made to women-led businesses and 15% are made to Black, Asian and Minority Ethnic-led businesses. 

CDFIs are also committed to tackling the climate emergency and reducing the UK’s carbon footprint through investing into innovative and sustainable businesses. 

Without CDFIs, hundreds of viable businesses will not survive through the recovery from the COVID-19 pandemic and thousands of jobs will be lost. In the first three months of the crisis, CDFI CBILS lending protected over 3,000 jobs. 

CDFIs prevent and reduce unemployment by supporting business, fostering inclusive growth, boosting productivity and facilitating enterprise creation. 

Supporting businesses and preventing unemployment: CDFIs step-in to provide finance for businesses when other lenders are unable to. In doing so they offer a vital funding lifeline, protecting existing jobs and creating new jobs. Based on previous funding programmes, a £100 million CDFI fund could support 13,000 jobs. 

After the 2008 financial crisis, banks retreated from lending to the SME market; reducing lending by £151 billion between 2008 and 2011 . Without incentives such as CBILS and the Bounce Back Loan scheme banks will again retreat from the small business market. 

Fostering inclusive growth: CDFIs target businesses located in higher areas of deprivation or in underserved communities across the UK, and those which will make a significant employment impact. Through this they help to revitalise and grow left-behind places. 

Boosting productivity: Business investment is a key driver of productivity, and the decline of investment as a proportion of domestic output in the past three decades has had an impact on the UK’s low productivity. Following the Covid-19 crisis, catalysing productivity growth will be key to the economic recovery. This will be driven by investment, and making sure that investment is put to work. 

Facilitating enterprise creation: CDFIs deliver the Government’s Start-Up Loan scheme. They have seen an uplift in demand in recent weeks as people begin to think about their aspirations after lockdown. CDFIs provide support alongside finance, helping the unemployed transition into meaningful employment. 

Bloom’s comments on the Reports

Bloom considers that these reports and the Representation were overall very constructive but yet again it appeared to miss the main problem - the lack of coverage available of alternative fair finance lenders in the UK.

Please note the following facts about existing Credit Unions and Responsible Finance Organisations (RFO's) in the UK

Bank of England statistics issued on 28th August 2020, shows there are now just 277 remaining Credit Unions in England, Scotland and Wales with 145 in Northern Ireland.   

The Community Investment Steering Group Report Nov 2019 - Scaling up Community Investment in the UK states that there are only 23 active RFO's in the UK.

From these statistics it estimated that no more than 5 - 10% of the UK has any coverage available from a Credit Union or a RFO.  

There are 69 cities and over 48,000 towns in the UK.   In the last 10 years many Credit Unions have been closed and NO services replace those lost to the massive detriment of the Community in which they were based.