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Social enterprises face 'damaging obstacles' to coronavirus loans

19 Jan 2021 News

Social enterprises could go out of business because of “damaging obstacles” to accessing government-backed bank loans, sector leaders have said.

Locality, UnLtd and Social Enterprise UK are among the social enterprise bodies which have written an open letter to the Treasury demanding that the loan scheme system “improves swiftly”.

The group said that some social enterprises have been told it will take weeks to open the bank accounts needed to apply for loans, while others have been turned down by banks completely.

Emergency loans

In April last year, at the beginning of the first national lockdown, the Treasury announced that small and medium-sized businesses impacted by the restrictions could apply for “bounce back loans”, managed by mainstream banks and backed by the government.

Around 30 high-street banks have helped make the loans, including Barclays, HSBC and Natwest.

The scheme promised loans of up to £50,000 to affected businesses, with no fees or interest due for the first twelve months.

Two obstacles

However, the letter reports that sector bodies have received “consistent reports from social enterprises, co-operatives and community businesses that they are facing two key obstacles that block access to government-backed loans”.

Firstly, the ethical and social banks used by many social enterprises are not included in the scheme, meaning that organisations need to set up new banking arrangements.

Secondly, with the banking system already under pressure, banks have told some social enterprises that opening an account will take “months rather than weeks”, with other social enterprises turned away completely.

The letter said that social enterprises also face delays because their business model is seen as “outside the banking norm”. 

“This is a failure which we are confident can be corrected”, the signatories said, although they warned that “businesses that have to wait twelve weeks for a Bounce Back Loan are in danger of failing”. 

The social enterprise group said that it had raised the issue with the banks but concluded that, without the government stepping in to ease access to loans, “we anticipate that this situation will get much worse, as the new lockdown takes its toll and the deadline for loan applications nears”. 

They asked to meet officials to “jointly overcome these damaging obstacles to the much-needed government-backed loan schemes”.

Progress on grants

Around 120 social enterprises have received emergency grants through the fund set up by UnLtd and Comic Relief, using money from the government’s £750m emergency support fund announced in April, although the group says this represents less than 1% of the sector.

The letter is also signed by the Plunkett Foundation, Community Leisure UK, Social Enterprise Mark CIC, Social Enterprise Northern Ireland, Social Value UK, Co-operatives UK, Social Enterprise Scotland, and Wales Co-operative Centre.

Vidhya Alakeson, the chief executive of the funder Power to Change, said that she was aware that some community businesses had been able to access bounce back loans, adding that community businesses will be "vital to local recovery, and therefore it is essential they have access to all the tools and financial support available to help them survive".

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