Block, the tech company co-founded by Jack Dorsey, former chief executive of Twitter, is putting £2mn of funding into a Birmingham-based not-for-profit lender which provides business loans across the West Midlands.
The New York-listed company’s investment follows other private sector investments into Community Development Finance Institutions (CDFIs), a vital lifeline for those without access to loans from traditional sources.
“We’re excited to announce an investment in ART, so that it can continue its work of 25 years investing in small businesses and entrepreneurs who don’t necessarily have access to capital from the traditional financial means,” said Amrita Ahuja, Block’s chief operating officer.
Block’s investment of £2mn into ART Business Loans, a Birmingham-based lender which provides loans of between £10,000 and £15,000 to businesses unable to meet the full requirements from banks, will be matched by UK-based Unity Trust Bank, a commercial lender which lends to charities, trade unions and not-for-profits.
“This deal is a real game-changer for us and a great vote of confidence from such well-established institutions as Block and Unity Trust Bank,” said Steve Walker, ART’s chief executive.
CDFIs are not-for-profit lenders, which typically provide lower-value loans. They are often a last resort for businesses and consumers who are unable to secure a loan from other sources, for example due to poor credit ratings. There are about 50 CDFIs in the UK.
Block’s move was welcomed by the sector as an example of the kind of funding needed to provide access to loans for under-supported groups.
“It is routine for large corporations in the US to invest in [domestic] CDFIs, knowing they boost business growth, help create jobs and address regional and demographic under-representation in accessing finance,” said Theodora Hadjimichael, chief executive of Responsible Finance, the CDFI trade body. “But an investment like Block’s has been unprecedented until now in the UK.”
Ninety per cent of viable businesses which borrow from a CDFI have been turned down for finance elsewhere, she added.
The funding follows news last month that Salad Money, another CDFI, had secured a £40mn debt facility with a US-based credit fund. In January, UK high street lender NatWest announced £900,000 funding for the sector.
The investment is part of a broader $100mn “social impact investment fund” which Block announced in 2020, with some of the funds allocated to US CDFIs. In total, $10mn has been allocated for investments outside the US.
The UK sector has seen soaring demand in the face of high inflation and the rising cost of living, with customer numbers doubling year on year to 67,000 in 2022. It paid out £228mn in loans in 2021, according to Responsible Finance — a 32 per cent increase on the year before.
Lenders have also warned that even as the number of applicants increases, their emphasis on responsible lending means they are unable to provide loans to many whose finances have been stretched by the cost of living crisis.
Those who cannot be served rely on other forms of credit from popular, but controversial, buy now, pay later products to illicit loan sharks.
“With more than a million people in England turning to illegal money lenders in 2022, it’s clear the government needs to do much more to ensure fair banking for all,” said Kay Polley, co-head of movement building and campaigns at the Finance Innovation Lab.
Polley said lessons could be learnt from other countries such as the US, where legislation has been in place since 1977 to ensure that banks make loans even in deprived areas.