First signs that Merlin Project is reaching regional SMEs
Foundation East’s mission to make business finance more accessible in the East of England is gaining momentum. Three of the big banks – Barclays, Lloyds Banking Group and the Royal Bank of Scotland – have all signed up as corporate members of the community finance organisation and are committed to referring the companies they can’t support to Foundation East, who may be able to.
Katy Ford, Chief Executive of Foundation East, believes this is a step forward and is encouraging companies and individuals who have a viable business plan, but that have been refused finance, not to give up trying to gain finance.
She says: “We have provided affordable loans for companies across the East of England, ranging from a window cleaner in Bedford to a leading-edge technology company in Cambridge. We judge each application on its merits, and a poor credit history need not be an obstacle.”
One of the issues that Foundation East has identified is that many banks rely on credit scoring by computer to agree loan applications, which means that many viable business plans are rejected. Katy Ford wants banks to refer these applicants to Foundation East.
“Unlike a bank, we use a panel of people to make the decision to lend. All too often people with great ideas and achievable cash flow projections are being discouraged from building a business when they are told banks can’t lend and this is impacting confidence and the economy.
“If we can encourage banks in this region to increase their referrals to Foundation East then these businesses can be helped, more jobs are created and everyone wins.”
Under the Project Merlin agreement with the government four of the UK’s biggest banks agreed that they will make a greater contribution to regional economies and society. Supporting Foundation East is one of the ways they can do this effectively and make a real impact.
Foundation East is a community finance organisation that is run by its membership of business people and professionals who understand the needs of smaller ‘home grown’ businesses. Over the last year it has loaned over £750,000 to individuals and organisations that have been refused bank finance. By providing relatively small sums of money to these companies (up to £50k) it has given many an essential first step towards profitability. Repaid loan capital is lent to more businesses creating a virtuous circle.
Peter Martin, Regional Treasurer of the Federation of Small Businesses, has welcomed the news. The organisation has reported that its members are not receiving the finance they need.
He says: “Small firms are the drivers of local economies and will take the lead in ensuring that economic recovery is strengthened. Foundation East is making great strides in creating a business-centric approach to finance and we would welcome any initiatives that make finance more available.”
David Gill, Chief Executive of St John’s Innovation Centre (SJIC), comments that now is a good time to start and grow a business but that entrepreneurs also need a better understanding of finance.
“Companies need to take time to get investment ready but there are funds available. To give an example, companies taking part in the Understanding Finance for Business programme run by SJIC have raised nearly £5.5M. Of course it is always possible for banks to do more, but ensuring that SMEs understand what lenders and investors are looking for will always be a good starting point. And many successful firms both start and grow during downturns as well as in times of economic growth,” he says.
Foundation East is also looking for more members to help on its loans panels. Individuals with a grassroots understanding of how to grow a business are best placed to make the decisions. Members purchase shares in the organisation and see a social return on their investment.