Don't throw all the money lenders out!!!
The practice of lending money to support or help establish a business is ‘as old as the hills’. Because of the current news, the general view is that moneylenders are ranked at the same low level as the press, estate agents and MPs.
In reality there are some extremely good journalists, estate agents and MPs and shock surprise, there are also some really caring money lending organisations. These companies generally do not have large advertising budgets, so they have little voices which are drowned in the blustering and booming of the banks, credit card companies and pay day loan puppets.
It can therefore be hard work to find them, but once you have, the experience can be enlightening and certainly not little.
Community Development Finance Institutions (CDFIs) are well -known in the USA. However, they also exist in nearly every part of the UK and the national association, the CDFA, has its headquarters in London. Whilst the rules may vary from company to company, in general their raison d’être is to lend money to businesses when they have been unable to obtain funding from a bank.
In the East of England, Foundation East has been in business since 2004. It can lend up to £50,000 to a start-up or existing company with a workable business plan.
Where is the difference? Foundation East is a not for profit organisation and its employees do not receive ‘fat’ bonuses or salaries. Their work is focussed on saving and creating jobs and boosting the local economy. It is their job to provide loans and thereby supporting the ‘S’ and the ‘M’ of SME. The Business Loan Managers who visit the loan applicants are more interested in the people, the idea and the passion than credit score, credit history and security.
What is so good? Since April 1st FE has approved loans totalling £270,000 to existing and start up businesses based in Bedfordshire, Cambridgeshire, Essex, Hertfordshire, Norfolk and Suffolk and would be very happy to achieve £1million of lending by the financial year end. Over 90% of the current portfolio is paying on time with 70% of the remainder striving to get back ‘on stream’. All these repayments are used for further lending. The loans are approved by panels made up of members. Foundation East is a membership organisation. Many well-known local individuals, entrepreneurs and companies have shown their support in this manner.
It works! A recent Social Return on Investment audit concluded that for £1 invested by Foundation East £3.79 of social and economic value was produced. The ‘proof of the pudding’ is case studies.
When the owners of a small stationer in Harleston, Norfolk decided to retire, Carly Newton (29) decided that the time was right to buy the shop where she had worked for 4 years. Following lack of support from a bank but with the help of the Princes Trust and Foundation East Carly is the proud owner of Pen & Paper and the passion for her business is evident in her plans for the future which include’ Arts and Crafts’ courses and ‘Make and Take’ days for parents and small children.
‘Having to find a new job would have been stressful’, says Carly, ‘and could have put my family like at risk, but buying the shop has given me the satisfaction that I would never have elsewhere’.
Fernando Gris and his wife Maria purchased the jewellery wholesalers Marjo in 2002. Their skill and determination has resulted in the range, which is based on providing quality at affordable prices expanding to over 3000 items and sales figures increasing year on year. However, every business has to face challenges. Fernando comments,
‘The business was going very well but when the recession hit and with the price of silver going up we were struggling to find enough working capital to keep the orders going and in a cash hungry industry it was vital that we had finance as otherwise we would have struggled’.
Despite the economic situation Marjo continued to trade successfully and increase market share. With this positive outlook Fernando sought finance from his bank thinking that they would be able to help.
‘I went to the bank with a positive view that they would be able to support our business. Marjo had been trading for twenty years; we had a full order book and were operating successfully in our market. Even with this they just didn’t seem interested in supporting the business or even lending to us’.
After being turned down Fernando researched other options. It was during this research that he discovered Foundation East. With his determination and encouragement from Business Loans Manager Bob Shimmon, who described the business as ‘fantastic with tremendous potential’ Fernando applied once, was initially refused, but received his loan at the second attempt.
‘Foundation East were brilliant throughout the whole process and so refreshing to work with’, says Fernando. ‘Instead of it being done by the computer we spoke to our own Business Loans Manager and their approach was so traditional and personal’.
The business continues to grow with much of the work now being brought in-house and completed by a team of 12 people. Maria is fully occupied designing jewellery, controlling the retail on-line operation or selling at large county shows. Fernando and Maria now have a new challenge – how the company is going to evolve, expand and reach its full potential.
There is an old song titled ‘Living in the Past’. The idea that the bank is the only commercial choice when seeking a loan is definitely of the past. There are many options. CDFIs come into play if a bank has declined to provide support. Many would like the opportunity to approach them earlier because it is not just the money – it is the whole attitude and support; dealing with people that want you to succeed, not because there is big bonus for them but because their job satisfaction comes from your success.
Richard Glinn, Marketing and Membership Manager