microfinance - expanding your trading with a small loan
DESCRIPTION
By WCVA at the Third Sector Funding Conference 2013TRANSCRIPT
Micro Business Loan Fund
Alun Jones
Agenda
• What does WCVA provide?• Are you ready to use it?• Why would you want to use it?• Why aren’t you using it more?
It’s a discussion session.........
Micro Business Loan Fund
£6 million of Welsh Government money aimed at supplying SME’s with much needed credit
Fund is managed by Finance Wales
£1 million to provide micro loans to social enterprises in Wales
£1,000 to £20,000 with a maximum repayment term of 5 years
Partners
WCVA Sector reach
Business lending experience
Credit Unions Local delivery
Coalfields Support servicesRegeneration Trust
Micro Business Loan Fund Objectives
To provide micro credit loans to social enterprises across Wales allowing them to grow and create prosperity in their communities
Project Targets and Outputs -
Period
Amounts Invested
Jobs safeguarded/cr
eated
Number of companies receiving
investment2013 £150,000 30 15
2014 £200,000 40 20
2015 £250,000 50 25
2016 £200,000 40 20
2017 £200,000 40 20
What is a social enterprise?
• A business with social objectives. Their left-over profits are reinvested for that purpose in the business or the community, instead of raising profit for shareholders and owners.
• Social enterprises tackle a wide range of social and environmental issues.
• They compete in the marketplace like other businesses, using their business skills to achieve social aims.
• Like other businesses, social enterprises aim to sustain their business and make profits. The difference is what they do with the profits.
Social Impact
• We are investing to create a financial as well as a social return – a sustainable fund
• Must be evidence that the activity itself or the profits generated from the activity go on to have an additional social impact over and above what a traditional business would create
• This might include –
– Employing those at a disadvantage– Creating additional opportunities or services – Re-investing profits in charitable non-trading areas of delivery– Create additional environmental, equality or regeneration impacts
To whom are we lending?
We only lending to social enterprises that are incorporated – organisations not to individuals
x Association
x Company limited by shares
Company limited by guarantee
Community Interest Company (CIC)
Industrial and Provident Society (IPS)
How much risk is the fund willing to tolerate?
• Only lend to organisations where there is a clear picture of how they will be able to repay the loan. We are not operating a re-payable grant fund
• There is an inherently greater risk in default in our prospective clients because we are here to back innovative organisations to grow that wouldn’t otherwise receive investment
• We are not here only to provide investment in situations where there is a cast iron case for investment
• We are also not here to invest and worry about the ability of the organisation’s ability to repay at a later date
• We don’t want viable ideas to fail for the want of funding
Assessment Process
• Eligibility• Governance• Social Impact/Community Benefit• Financial Sustainability
Eligibility
• Location• Incorporated Social Enterprise• Purpose• State Aid Limits• Fundable Activity
Governance
• Paid employees as directors• Majority of volunteer directors• Relevant skills and commitment• ‘Arm’s length’ commercial links
Social Impact/Community Benefit
• The easy bit• Keep it succinct!• Can help balance financial risk
Financial Sustainability
• Not a grant fund – ‘enough’ not ‘as much’• Prove you can afford it (to whom.....?)• Is it credible?• Sensitivity analysis• Plan B• Risk identification and mitigation
Loan Ready?
• Idea – generate new income• Business Plan• Financial Forecasts – whole business• Historic Financials• Financial Monitoring Capability
Loan Assessment : an overview
1. Peoplei. Governance
2. Businessi. Marketii. Social impact
3. Financesi. Credibility of incomeii. Costsiii. Profit trendsiv. Sensitivity analysisv. Balance sheetvi. Reserves
4. Project
5. Loan term and amount
6. Final recommendation
Cash Flow Analysis & Risk Assessment
• Do I believe the income estimates? Why?
• Do they give me enough information about the business (its different income streams; seasonality; assumptions; etc.)?
• Do I see what I expect to see? Do words and figures differ?
• Are all the obvious and significant costs included?
• Are the loan repayments included?
• Do the figures add up?!
• What are the really important lines?
• What are the risks and what can be done to mitigate them?
Terms
• Interest rate 10%
• Maximum term of 5 years
• £200 fee
• Debenture on company will be taken
• No personal security
Why borrow money?
Barriers
• Can get a grant• Grant cut backs hitting core services• Risk averse trustees• “Didn’t know it was available”• Too expensive
Why Borrow?
• Grant availability• Independence• Speed of decision making• Maintain reserves• Bridging