Government-backed loan scheme says it ‘takes risks’ to have social impact
The Start Up Loans programme said it has helped 100,000 small businesses with nearly £1 billion in lending.
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Your support makes all the difference.A Government-backed loans scheme has said it is willing to risk losses if it means more start-ups can access funding, as it revealed it has helped 100,000 small businesses with nearly £1 billion in lending.
The Start Up Loans programme stressed it has an important “social impact”, and has lent to more women and entrepreneurs from ethnic minority backgrounds than other high street lenders.
Richard Bearman, the scheme’s managing director, said it recognises that a significant proportion of start-ups fail and therefore there are risks involved.
It's about striking the right balance - we take enough risk to mean the scheme actually has an impact, but not so much risk that we are throwing away money
He told the PA news agency: “We do take risks. We do have loss rates that a high street lender would probably not accept, and that’s partly because we are not there to make profits as such.
“There might be higher loss rates, but to fund a lot more start-ups has a real social benefit which is why the policy objective is to help them to succeed.
“It’s about striking the right balance – we take enough risk to mean the scheme actually has an impact, but not so much risk that we are throwing away money.”
The programme was launched in 2012 and provides personal loans of up to £25,000 for aspiring business, at a fixed interest rate of 6% a year.
It gets the funding from the Department for Business, Energy and Industrial Strategy (BEIS), which also means it is not designed to generate a profit.
Mr Bearman said that the lender is somewhat a “best-kept secret” but wants more entrepreneurs to know they can turn to the scheme for help getting their business or idea off the ground.
He added that it has seen more interest in the last three to four years, possibly because people are finding it harder to access funding from high street lenders, who are more wary of people defaulting on loans.
We are counter-cyclical - we should be at our best when the economy is struggling because our role is to support people in these more challenging times
“I would understand if the rest of the industry is pulling back a bit because there is more risk in the market,” he told PA.
“But we are counter-cyclical – we should be at our best when the economy is struggling because our role is to support people in these more challenging times.
“Arguably, it is even more important to get start-ups off the ground during a recession because we need them to help stimulate and grow the economy.”
Start Up Loans, which forms part of the British Business Bank, said it has provided more than £941 million of funding in total.
Of its total loans, 40% have gone to women and 20% to people from black, Asian, and other ethnic minority backgrounds, it said.
Mr Bearman said those proportions are well above the level of businesses that are started by women and ethnic minorities, but it is striving to do even more to close the gap in funding.
Furthermore, since 2012, 5% of loans have gone to people who were formally unemployed or economically inactive, it said.
And in terms of the volume and value of loans, the top five regions capitalising on the scheme are Birmingham, Leeds, Cornwall, Hackney in East London and Manchester.