In the Birmingham Post’s SME 2011 Handbook, council leader Mike Whitby said that small and medium sized enterprises play a huge role in development of Birmingham’s economy, creating wealth and sustaining employment.
He added that the vast majority of the 40,000 businesses within Birmingham are SMEs – a major source of technological innovation and new product development.
To qualify as an SME, a business must:
- employ less than 250 staff
- not be a subsidiary of a firm based outside Europe
- own more than 755 of the business
- have a turnover of less than £50 million
A problem for SMEs is that there is very little profit in small business loans for the banks, so they tend to be cautious about offering them. The credit crunch has only accelerated a trend which started over 20 years ago. A bank might consider a business ‘risky’ because it has no trading history, or because the directors want to change direction, or because the owner has insufficient assets to guarantee a loan.
An Aston Commission, set up years ago, had several findings; one was that people in the area were unable to get bank loans to start or improve businesses because they had no form of security to offer. To address this, a revolving fund – the Aston Reinvestment Trust [ART] – was established. When loans are repaid the money can help another business and profit is reinvested in the company. Over the years it has created or retained more than 4000 jobs in the city.
Steve Walker, ART’s Chief Executive, explains that its aim is to ensure that viable small businesses, unable to access a bank loan, could access up to £50,000 to help them survive, diversify or grow. Originally lending to businesses and social enterprises operating in the most disadvantaged areas of Birmingham, including Aston, ART now covers Birmingham and Solihull.
ART has a different business model. Its aim is not to maximise profit for shareholders, but to support the local economy and enable its borrowers to create or preserve jobs.
It is a Community Development Finance Institution (CDFI) – the first in the country – structured like a traditional building society and owned by its members – borrowers and investors. Other CDFIs have been set up to support businesses in other geographic locations, the nearest being in the Black Country and Staffordshire, Coventry and Warwickshire and one covering Shropshire, Herefordshire and Worcestershire. They are members of the Community Development Finance Association [CDFA].
Steve Walker’s message to SMEs: “There is money available and we need the business community to have the confidence to use it to either start or grow their businesses in these challenging times.”