A new report suggests that non-bank community lenders – those that help businesses turned down for a loan by traditional lenders – are seeing an increased demand from businesses, whilst demand for bank finance is declining; hardly surprising when you consider the reluctance of banks to lend. In this article we explore what finance is available and which businesses it’s suitable for. The recent Community Finance Monitor survey found that increase from local businesses for Community Development Finance Institution (CDFI) loans rose by 36% in the first quarter of 2013. So are CDFIs part of the future of business funding? What are CDFIs? CDFIs are small, independent organisations set up to support communities by providing affordable finance that would otherwise not be available. Many CDFIs are run with funding from the Government and charitable trusts, alongside other funding sources. CDFIs lend money to businesses, social enterprises and individuals in deprived communities who struggle to get finance from ‘mainstream lenders’ like banks, building societies and loan companies by offering loans and support at an affordable rate. Who do CDFIs help? They can provide loans and support to: Microenterprises (fewer than 10 employees) Small businesses (10-49 employees) Medium businesses (50-249 employees) Social enterprises, community organisations or charities Individuals. Though most lending by CDFIs is to micro and social enterprises. In 2012, CDFIs lent £30.2m to 2,608 business customers, including those who wanted to start their own businesses. What type of investment do CDFIs finance? CDFIs provide finance for a wide range of business purposes, including: Working capital Bridging loans Property and equipment purchase Start-up capital Business purchase Back to work loans. What criteria do I need to meet? CDFIs usually only lend to customers who have been unable to get the finance they need from a mainstream lender, and you may require proof of this. However, they may also provide loans to businesses waiting for finance to come through from another source, or if a bank is only willing to lend part of the finance they need. Are CDFIs safe? CDFIs are seen as reputable source of finance and some of the larger CDFIs are regulated by the Financial Services Authority and all must comply with the sector’s trade association, the CDFA’s, code of practice. You can find your nearest CDFIs here. The Forum can advise small businesses on accessing bank and alternative sources of finance. Call us today on 0845 130 1722 to find out more.
A new report suggests that non-bank community lenders – those that help businesses turned down for a loan by traditional lenders – are seeing an increased demand from businesses. But what are they and can they help your business?