Lancaster was speaking to The Herald as Govan-based DSL, which was originally set up with cash from the Body Shop and provides unsecured loans to small businesses to which traditional banks are unlikely to lend, announced that the agency last year had received applications from small Scottish firms
for almost £3m – more than double the value of applications in 2007, the year the financial crisis began.
“There is clearly growing demand for our kind of finance,” said Lancaster, the daughter of
a Greenock shipyard worker who is quietly bringing about a small-business revolution by encouraging entrepreneurship in some of Scotland’s poorest and most deprived areas, pulling people into the fabric of the wider economy.
“We continue to receive many more applications than we have money to lend,” she said.
Meanwhile, Obama, during his first State of the Union address last week, has pledged to provide small businesses in the US with a new range of tax breaks and better access to
bank loans.
The Obama administration has already increased investment in community development finance initiatives (CDFIs), from $50m to $400m.
Lancaster said: “In the States, which certainly has a much greater tradition of supporting CDFIs – which is essentially what we are – they set up special funds to dispense wholesale capital to community development finance initiatives.
“That is something I would like to see happen here. It would not only be beneficial to us, but to CDFIs across the UK.
“At the moment, all our funding comes from the repayment of our loans and from the bank loans we have taken out ourselves, which limits how effective we can be.”
Lancaster added: “It would be nice to have access to cheaper money, which we could then pass on to support more small businesses.
“It’s interesting to note that as a response to the banking crisis in the US, the Obama administration has increased investment in CDFIs similar to DSL.
“Could they offer a real ethical alternative to banks for business lending?
“I also think that quite apart from all the disillusionment with the big banks and bonuses, better support for CDFIs would provide more variety and more options for businesses seeking funding, which can only be a good thing.”
Meanwhile, the latest annual lending figures from DSL – which is considered an ethical lender because it has no shareholders, takes no profit and pays no bonuses to staff – reveal that while bank lending to businesses virtually came to a standstill around the world last year, small Scottish firms were turning in increasing numbers to DSL.
The figures also reveal that DSL, which runs a £1.5m loan fund for small and start-up businesses, charities and social enterprises, was significantly over-subscribed.
In 2009, the micro-finance operation received applications for a total value of around £2.8m, compared with £2.7m in 2008. However, in 2007, just before the worst of the recession began, it received only £916,000 worth of applications.
Under the government’s Enterprise Finance Guarantee scheme, DSL offers loans of up to £30,000 to small firms – even if they have no security, are not considered credit worthy or have been turned down by the bank for a loan.
Small firms which apply for loans must appear before a Dragons’ Den style approvals panel, where volunteers from the world of business and finance assess the applications.
Lancaster added: “Small and start-up firms are continuing to have difficulty getting bank funding and are turning to alternative lenders like DSL.
“We are also finding that the type of firms approaching DSL is changing – we are seeing more established businesses and high growth start-ups.
“Before the banking crisis, many of these businesses wouldn’t have a problem securing bank finance – but now they are finding that is no longer available to them and they’re turning to DSL.”
She added: “We like to think we operate like the old-fashioned bank manager. We get to know our clients and their business. We look at the whole picture and not just the figures.”
DSL, which has helped more than 600 businesses across Scotland to create 2000 jobs with £7m of investment, recently expanded into Edinburgh as well as east and central Scotland.
