The widening gap between local finance and need

ART Business Loans was a pioneer community development finance institution when it opened in 1997, offering loans to businesses in inner city Birmingham unable to access mainstream finance. As ART celebrates its 20th birthday Steve Walker, chief executive since the outset, reflects on the ever-widening gap between finance and local need

Like many social enterprises ART was originally established to fill a gap in the market – access to finance for small businesses and social enterprises. Its aim was to ‘alleviate poverty through enterprise’ and it raised funds – to lend and to help cover bad debt – from local and national sources and from the private sector (partly social investment) and the public sector (then called regeneration funding.)

In 20 years that gap in the market has in my view widened. We are now lending to businesses that the banks would previously have supported – bigger businesses and ones based across the whole of the west Midlands, not simply in areas designated as ‘disadvantaged’, although ‘underserved’ areas remain our priority.

We lend between £10,000 and £150,000, although our average loan size is just £33,000. A sum which it is difficult to access elsewhere, but which makes a vital difference – supporting cashflow, helping with the cost of repairs or new equipment that enable smaller enterprises to survive and grow.

In the words of our first chairman, the late Sir Adrian Cadbury, ART enables things to happen that otherwise wouldn’t and helps to create and protect local jobs for local people.

Michelle Henry set up HNS signs in Birmingham with a loan from ART. One of her clients is Aston University

Banks no longer funding start-ups
So, overall, are businesses better served when seeking appropriate finance than they were 20 years ago? The answer must be a resounding yes – with so many more alternative and additional sources of finance available to support their needs than there were in 1997. However, if you look more closely, you will see that there are still sectors and types of business, which remain ‘underserved’.

In 1997 the major source of finance for all businesses, and probably for the vast majority the first point of call for finance and advice, was the banks. The banks today are still far and away the largest provider to businesses.

However, at the small business end they have decided to move away from the high risk areas: start-up and early stage businesses and also the micro business sector. That move has led to the creation of a large number of ‘alternative’ funding suppliers – peer-to-peer lenders and crowdfunders which lend in addition to the banks and the renamed ‘responsible finance’ sector, concentrating their loan offers after a bank decline, of which ART is a part.

While ART is operationally sustainable, it cannot operate on a purely commercial basis to serve its market. It will always rely on social investors and public sector support to back its lending with ‘first loss’ cover against bad debts.

Consistency in funding the ‘alternative’ needed as demand grows
The present challenge is how to meet increasing demand in the face of public sector spending cuts and the prospect of no further funding from Europe. The devolution agenda dictates that funding should be available locally, but this is taking time to work through.

What the sector needs is some kind of consistent and appropriate mechanism for long term funding – perhaps involving the banks and the government as in the United States from where part of the inspiration for ART’s model of lending was originally drawn.

Independent evaluations and analysis of the model over the years has shown that it provides excellent value for money compared to other interventions for boosting employment and the economy.

Since 1997 ART has lent over £21m to more than 900 enterprises, enabling them to create or protect in excess of 7,000 jobs. We have supported businesses operating in just about every market sector and you can read some of their stories and thoughts about ART on our website.

It is impossible to predict what the future might hold, but we remain committed to continuing to champion access to finance and will continue to seek funding from a wide variety of sources to help us fulfil our mission of supporting and championing access to finance for viable enterprises that achieve a social and economic impact.


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