Black Country Reinvestment offers Cable funding model

THE coalition Government needs to look at the business model of a Black Country funding stream if it is serious about reforming access to finance for SMEs.

The Black Country Reinvestment Society said it had created a “workable solution based on mutual principles” and was operating successfully outside of the banking sector.

Paul Kalinauckas, chief executive of Wolverhampton-based BCRS, said, “There is a high degree of risk involved in running a small business, whether it’s a start up or an established business.

“New business owners often don’t have secure assets and have put everything on the line for their businesses. BCRS already has a proven delivery vehicle in place that can offer loans to SMEs and has been doing so successfully since 2002.”

BCRS recently celebrated its small business loan fund reaching £5m. It now has plans to extend this to £10m within the next two years. The company was founded as a not-for-profit loan fund offering loans of between £10,000 and £50,000 to small businesses in the Black Country.

Last year, BCRS created a £750k business loan fund with Sandwell Metropolitan Borough Council and is in discussion with other local authorities in the Black Country. It has also created a £1m loan fund with Staffordshire County Council and is looking to expand into Stoke on Trent.

Mr Kalinauckas said: “BCRS are in an area where the multi-trillion pound commercial banking sector refuses to operate. If they could, they’d be doing it. But they aren’t, because they can’t make money out of it and the transaction costs are too high.

“The transaction costs for a £20k loan are similar to a £2m loan. But there’s money to be made from the £2m loan, none from the £20k loan, so it’s not worth the effort. That’s the challenge we face.”

He said while banks may claim that demand by SMEs for loans had been slack, this was not surprising.

“If BCRS offered asset-backed, copper plated guaranteed loans in the way that banks do, we would then require our clients to put up all of their assets – thus putting the futures of their families at risk – and we’d have our pound of flesh,” added Mr Kalinauckas.

However, he said this was completely contrary to the BCRS ethos as a co-operative. He said what the society wanted was to support small enterprises, not ruin them.

“Vince Cable has stated that he is worried about the behaviour of the banks. They have already been given trillions of tax-payers money. How much more do they need?

“If the coalition Government is serious about helping and encouraging small enterprises and innovators, they can do worse than looking at the model we have created here in the Black Country – a workable solution based on mutual principles that can help make the Black Country great again. And the time is now if we are to encourage economic recovery,” he said.

Mr Cable has released a Green Paper outlining ways in which the Government wants to improve access to finance for SMEs so they can sustain their business through recovery.

It is considering a number of options – one of which includes the possibility of a number of regional stock exchanges.

Mr Cable has also said he will implement a “carrot and stick” approach to ensure that banks maintain lending to small businesses.

It follows the Business Secretary’s recent statement that he intended to use “mandatory action” to force the semi-nationalised banks to lend on favourable terms to small and medium size enterprises (SMEs).