Credit where it's due

Businesses may soon be able to get a loan from a credit union on the back of new legislation.

Businesses may soon be able to get a loan from a credit union on the back of new legislation.

In January, it became theoretically possible for credit unions to lend to businesses. Paul Mcfarlane, head of operations at Glasgow Credit Union, the largest in the UK, believes that the new legislation could help boost the country’s falling business start-up rates as well as help established companies.

‘The changes in legislation mean that those firms struggling to survive due to cash flow problems have a potential extra financial lifeline to help boost their business.’

Each credit union will individually decide whether they will extend their membership to businesses. So far, according to ABCUL, the industry body for credit unions, no unions have made use of the capability to lend, but many have plans to, including Glasgow.

Lucky Chandrasekera, CEO of Southwark Credit Union, says that currently his organisation only offers personal loans, but there is a growing demand for business loans and he is looking to introduce the facility this year.

However, he says that the credit union has no expertise in-house to deal with requests. ‘We are thinking of putting together a consortium, perhaps comprising bank managers or representatives of the local authority, that can help us go through business plans and see which applicants are viable for a loan.’

Additionally, credit unions have to attain approval from the FSA before they open a corporate account. Chandrasekera says he had experience of lending to businesses in 1996, at which time there was a government-funded programme to assist credit unions with supplying loans.

However, the initiative was stopped in around 1999 after becoming overwhelmed by bad debts. ‘With hindsight, the applications maybe weren’t being assessed properly, but this time we will be lending to the right businesses,’ he says.

Phil McCabe, senior policy adviser at the Forum of Private Business, adds, ‘The government’s Breedon review taskforce recognises the barriers that alternative funders such as credit unions experience when trying to compete with the big banks, so it is important that steps are taken to improve their access to small business lending markets and for business owners to be made aware that this option is available.’

Ben Lobel

Ben Lobel

Ben Lobel was the editor of and from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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