Budding entrepreneurs shunned by the High Street lenders have been handed a funding lifeline by a venture that has created a ‘People’s Bank’ in the East of England.
Over the last year project Merlin, run by Foundation East, has loaned over £750,000 to individuals and organisations that have been refused bank finance. By providing relatively small sums of money to these companies – up to £50k – it has given many people an essential first step towards profitability.
The scheme is self-sustaining as repaid loan capital is lent to even more businesses.
Companies across the region of all shapes, sizes and nature of business are benefiting from this community finance initative - from Cambridge sheep farm Skeldale Flock to wireless company Omnisense – also Cambridge-based.
Now even the banks are getting behind the scheme. Instead of consigning failed applicants to limbo, three High Street lenders have agreed to refer them to Foundation East.
Barclays, Lloyds and the Royal Bank of Scotland – have all signed up as corporate members of the community finance organisation and are committed to referring the companies they can’t support to Foundation East, who may be able to.
Katy Ford, chief executive of Foundation East, is encouraging companies and individuals who have a viable business plan, but that have been refused finance, not to give up.
She said: “We have provided affordable loans for companies across the East of England, ranging from a window cleaner in Bedford to a leading-edge technology company in Cambridge. We judge each application on its merits, and a poor credit history need not be an obstacle.”
One of the issues Foundation East has identified is that many banks rely on credit scoring by computer to agree loan applications, which means that many viable business plans are rejected. Ford wants banks to refer these applicants to Foundation East in future.
She said: “Unlike a bank, we use a panel of people to make the decision to lend. All too often people with great ideas and achievable cash flow projections are being discouraged from building a business when they are told banks can’t lend and this is impacting confidence and the economy.
“If we can encourage banks in this region to increase their referrals to Foundation East then these businesses can be helped, more jobs are created and everyone wins.”
Foundation East is a community finance organisation run by its membership of business people and professionals who understand the needs of smaller ‘home grown’ businesses.
Peter Martin, regional treasurer of the Federation of Small Businesses, has welcomed the news. The organisation has reported that its members are not receiving the finance they need.
He said: “Small firms are the drivers of local economies and will take the lead in ensuring that economic recovery is strengthened. Foundation East is making great strides in creating a business-centric approach to finance and we would welcome any initiatives that make finance more available.”
David Gill, Chief Executive of St John’s Innovation Centre (SJIC), added that now was a good time to start and grow a business. But he added the caveat that entrepreneurs also need a better understanding of finance.
Gill said: “Companies need to take time to get investment ready but there are funds available. To give an example, companies taking part in the Understanding Finance for Business programme run by SJIC have raised nearly £5.5m.
“Of course it is always possible for banks to do more, but ensuring that SMEs understand what lenders and investors are looking for will always be a good starting point. And many successful firms both start and grow during downturns as well as in times of economic growth.”
Foundation East is also looking for more members to help on its loans panels. Individuals with a grassroots understanding of how to grow a business are best placed to make the decisions. Members purchase shares in the organisation and see a social return on their investment.
• Photograph: Cambridge sheep farm Skeldale Flock is one of the regional businesses to expand following a loan from Foundation East