Is community finance a viable alternative for businesses in need of funding?

It would appear that many of the high street banks are getting set to abandon the levels of support on offer for many small businesses.


The latest round of Lloyds job cuts looks set to half the number of roles in the business support sector, while there is plenty of speculation that Barclays could shut a quarter of its branches in the near future.


It is well known that SMEs in the UK contribute an exceptional amount to the economy, and the government have made a great deal of effort recently to accommodate them in this regard. However, the latest news from the banks would suggest that difficult times for funding may lie ahead.


However, community finance could fill the void left by mainstream lenders, by providing loans and credit at affordable rates to those otherwise deemed too risky.


Community Development Finance Institutions (CDFIs) can provide community finance and guidance, providing help for businesses, households and civil society organisations.


Looking for opportunities


A key focus is on improving economic opportunities, an aspect that can be of vital importance if a company or individual should be battling insolvency or the possibility of receivership.


For people who are lacking suitable access to finance, CDFIs can be of massive assistance, as they can take their time to assess individual situations before deciding on appropriate courses of action.


These measures go beyond standard banking practice and mean that people and companies that may be considered high risk have a much greater chance of gaining access to finance.


CDFIs have reportedly increased the amount of credit available by 265%, assisting in the creation of around 1,700 businesses and providing support for more than 19,000 customers.


According to the Community Development Finance Association, annual demand for community finance is somewhere in the region of £5.45bn to £6.75bn.


To contrast this however, only about £200m of finance was actually delivered by community finance organisations in 2012.


As a result, calls have been made to assist CDFIs in order to fulfill demand. But so far, any attempts at government financial reform have proved to be unsuccessful.


While the opportunity might exist for community finance to make a difference for many businesses, there is a sense that much more needs to be done for it to truly have an impact.


By Phil Smith


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