The alternative to alternative finance for SME’s | Blog | Foundation East

The alternative to alternative finance for SME’s

The challenges faced by small businesses in accessing finance have been well documented. And now the focus has switched to the alternatives to bank credit – such as crowdfunding, asset finance and invoice discounting.

But there is another alternative, an option that 13,000 businesses turned to last year. Community Development Finance Institutions (CDFIs) operate across the country and are specifically set up to provide finance for those who can’t access bank credit. CDFIs are non-profit, social lenders that combine the old and the new.

They have what could be described as an old-fashioned approach to customer relationships and community links. They are rooted in their communities and get to know their customers, understanding their business and their situation before assessing their financial needs. As Financial Secretary to the Treasury, Greg Clark, put it

“The reality of reliance on bank finance for many borrowers is that where previously a local bank manager would have used judgement in agreeing a loan, in many cases a centralised computer system is now doing the work, making exceptions for particular circumstances harder to recognise. This is why CDFIs are so important. Using a wider range of information, drawing on local knowledge and providing support to lenders, CDFIs are able to provide finance to viable businesses and social enterprises unable to secure lending from mainstream lenders, as well as to households in need of home improvement or personal credit.”

And they have a new approach to filling gaps in the market – innovating their products and support services to meet the needs of customers who are no longer able to get bank finance, and who may fall prey to payday lenders.

It used to be the case that CDFIs helped the most risky parts of the market – sole-traders and start-ups. But they are increasingly also lending to SMEs, larger, more established firms that no longer fit with mainstream banks’ criteria. Last year CDFIs saw a 150% increase in demand from SMEs.

And demand has continued to rise this year. In the first quarter of 2013 demand increased by a further 33%.

An injection of £60million of capital for the CDFI sector – from the Regional Growth Fund, Unity Trust Bank and Co-operative Bank – is helping them increase the numbers of businesses they fund.

To find your local CDFI visit They want to help businesses, they want to create jobs, they want to lend.

They are a real and present alternative for SMEs.

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  • About the Author
    Barry van Eupen

    Barry van Eupen


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