Most communities across Scotland have not been well served by the mainstream financial providers over the last years. In particular most small organisations and businesses within disadvantaged communities struggle to secure financial products essential to keep them operational and to develop them further.
According to the Bank of England ‘Bankstats’, since 2011 banks have squeezed SME lending by 18% or £35billion. This is particularly the case for third sector organisations, social enterprises and community businesses who work in areas where there is either market failure, or provide goods and services to small rural populations.
Research carried out in 2014, amongst the Third Sector in Scotland, found that most organisations struggle to find social investment that was appropriate to their needs, in particular micro, unsecured and risk capital at an affordable cost. These findings have subsequently been consistently supported by other organisations undertaking similar social investment research in the intervening period.
Since 2011/2012, 90% of lending by Social Investors in the UK was in the form of secured loans with the result that social and community enterprises are increasingly in need of unsecured debt finance. This is particularly the case for businesses who work in areas where there is either market failure, or provide goods and services to small rural populations.. Equally according to research carried out by BMG Research in the same year 93% of social and community enterprises had sought investment of less than £100k.
However all lenders are reluctant to take on the high costs and high risks associated with micro and unsecured lending.
The importance of lending at this scale cannot be understated. It not only addresses financial necessity, but also the need for a culture shift that normalises social finance as a vehicle for organisational development. Over time it will increase the confidence levels around repayable finance which in turn will increase the pipeline for larger social investments.
Community Loan Funds address this problem by making loans available to community and social enterprises.