Big Society Capital: Why a government guarantee is required

PRESS RELEASE: 4 APRIL 2012

Today the prime minister announced how hundreds of millions of pounds which currently lie dormant in bank accounts will be offered up for grabs through the government’s 'big society bank'.

The idea is that the funds will provide start-up capital for social enterprises but SAF Housing director, Phil Shanks isn't convinced.

“The head of this organisation states that social enterprise does not get support from banks because they have few assets, but banks deal with this everyday by way of ‘personal guarantee’. The reason they are reluctant to lend to social enterprise is because they see the source of funding (whether by grant or local government trading relationships) as high risk.

“Governments frequently reorder their priorities with scant regard for social enterprises who are delivering public services, so when their funding is cut, both they and the banks are left high and dry. In such a situation, the bank is left in the position of having to foreclose on a not for profit organisation which does no favours for a lender’s reputation. If the government really wants Big Society Capital to work it will have to provide a guarantee to secure the funding which services the loan.

“Just because this is a government initiative it does not exempt it from the need for guarantees and no investor with sense will back it until the issue of security of income is addressed.”

For more on this topic visit Inside Housing

And the Financial Times