Anyone for loan finance?

Having just prepared and delivered my twelfth annual report to ART members, I have been reflecting once again on how low the take up of our kind of finance continues to be from the social enterprise sector in Birmingham and the West Midlands.

ART (Aston Reinvestment Trust) is a social enterprise itself.  We were set up to alleviate poverty through enterprise, supporting job creation by offering loan finance to businesses, including social enterprises, unable to borrow the money they need from banks.

While the social enterprise business model has grown in popularity over the years and there is currently a particularly strong political drive to increase the Third Sector’s capacity to help tackle worklessness, we have seen the number of enquiries for loans from the sector diminish rather than grow.  In contrast, we have just reported to our members a record year for lending to the commercial sector.  This is hardly surprising, given that we are designed to help when the banks say no, but we do wonder why the social enterprise sector isn’t following suit.

In 1999-2000 we ran an EU-supported pilot, during which we lent over £400K to social enterprises.  It was heralded as a great success and we anticipated that demand would continue to grow.  But that has not proved to be the case.  ART has now lent over £8m since launch, including over £1m to social enterprises.  And we have supported some of the higher growth social enterprises in Birmingham – Future Health and Social Care, Jericho Foundation, ENTA and My Time to name but a few.

However, in the last two years our loan output to social enterprises and the wider Third sector has dwindled to almost nil – and we are not alone in the West Midlands in this: there is a much lower take-up of loan finance in this region than in other parts of the country.

As the proverbial pig flies across the keyboard, I might speculate that the reason for this is that the banks are freely lending to social enterprises in Birmingham and the West Midlands, so that there is no need for ART and other specialist social lenders.  But I don’t think that’s it.

Are the Boards of social enterprises too concerned about perceived risks associated with loans, preferring to chase grants – even though they are getting harder to find?  Are the managers of social enterprises in Birmingham more risk-averse than those in other areas of the country?  What effect will the introduction in Birmingham of the much-welcomed Social Enterprise Development Fund have, which encourages growth from trading?  Will there be an upsurge in demand for the combination of loan + grant + support lauded in the ACF evaluation reported in this blog in July?  Or just a mad scramble for the grants!

My belief is that reliance on grant finance can be a very precarious existence and that loan finance can offer stability, freedom to spend on what you want rather than what is prescribed, involves less cumbersome admin and can keep organisations afloat by overcoming short term cashflow problems.  Used wisely, they are a good thing.

But I would say that wouldn’t I?  I would be happy to debate the pros and cons with anyone interested!

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