Don't Put Funding for Lending on Steroids
Nick Clegg has spoken this week of the need to extend the Funding for Lending scheme and "put it on steroids". George Osborne, Vince Cable and the Bank of England are also desperate to get the scheme working for small businesses. In the last quarter of 2012 bank lending slumped by £2.4bn.
But do we need our banks to be more pumped up and aggressive, with hairy chests?
I think not. I think what we need is to open up the FLS to other providers - providers that can reach the businesses that banks can't.
Community development finance institutions (CDFIs) do just that. They fill gaps in the market but do so with a social mission - to help families and businesses, local communities and economies.
They would get the money out of the door. They exist to lend. Ad they lend in a responsible, fair and affordable way. Our members experienced a 150% increase in demand from SMEs last year. As the Federation of Small Businesses has pointed out, there is demand from businesses for finance, and the inability to access finance is holding back growth.
The same goes for CDFIs - if they had more access to finance they could develop and grow, and thus help far more businesses get the credit they need.
CDFA research revealed that the unmet demand for finance from viable businesses stands at £1.3bn per year. Meeting this demand would have a huge impact on UK jobs and growth. To meet the demand, CDFIs need sustained and strategic support as part of the financial services arena. They need to be brought into the Funding for Lending scheme.
Our recent experience of the CDFA's Regional Growth Fund programme shows that CDFIs are agile - they lent millions to small businesses as soon as they got the capital. Now they're hungry for more, and are perfectly placed to deliver on the coalition's goals.
Ben Hughes, CEO of The Community Development Finance Association.