*Trustees Week Special* As part of the GET INFORMED blog series, Nick Temple - Deputy CEO of Social Enterprise UK, discusses the demand for social investment.
Part of our work at Social Enterprise UK is to try and build a credible and robust evidence base that can inform policy makers, investors, programme designers and, most importantly, our members about what is happening in the social enterprise movement. To that end, we undertake the 'State of Social Enterprise' research every two years to update that picture - and have been doing so since 2007. Amongst much else, we ask about the barriers to growth and sustainability...and we ask about finance.
Since 2007, therefore, we've been able to build up a decent picture of the importance of appropriate finance for social enterprise, what are the barriers to them accessing it, and what they are using it for.
Finance has consistently been the most significant barrier to social enterprises whether at start-up stage or once established. For start-ups and earlier stage organisations, cash flow, obtaining debt & equity and grant funding are the top three most significant barriers. For the more established enterprises, those three are joined by 'the economic climate' in the top four. Whilst there are similarities with the challenges faced by any small businesses (who would also list cash flow, shortage of skills, time pressures etc), finance remains more of an issue for social enterprises. They are much more finance 'hungry' than their mainstream business counterparts, with over 44% having applied for funding and finance in the last year. Overall they seek an average (median) amount of around £60,000.
So what do they use this money for?
47% for development to fund growth or expand new services, 35% on property or equipment and a growing number on working capital or finance for contracts. The latter category has notably grown in the last few years, with 27% using investment for working capital in 2011, 35% in 2013 and 43% in 2015. This is in line with more restrictive contracting arrangements and tighter margins in the current operating environment. We know also that 40% are planning to attract investment in the coming year to grow...but only 20% managed to actually do so in the year before.
The data tells us that you are more likely to raise a larger amount of investment if you are asset-backed (like a housing association or a leisure trust), in an urban location, in the North and in a more deprived area: encouragingly, initial data shows money is going to the places that need it most. [See our Prospecting the Future research for Access with more info on finance from 2011-2015]
But there are plenty still not embarking on the social investment journey: and that's fine - for some, incremental and organic growth based on increasing contracts and customers is the way forward, and the surest route to growing their impact. For others, though, it may not be a choice and there are things getting in the way. When we asked those enterprises why they considered seeking finance but did not do so, they gave the following reasons (all mentioned by over 10% respondents):
- Knowing where to find it - 15%
- Wrong timing - 15%
- Not required - 14%
- Lack of confidence & skills - 13%
- Thought we would be rejected - 13%
- Time pressures - 13%
- Cost of finance - 11%
We can see here some expected reasons (it not being required, not the right time), some well documented ones (cost of finance) but also some that seem easier to address: navigation, confidence and skills, myths of rejection (actually social enterprises applying for loans are more successful than those applying for grants) and so on. And these are issues for boards as much as the staff teams running the organisations. That's why at Social Enterprise UK we are supportive of the Get Informed campaign, and trying to ensure that the social investment market is driven by the reality of the demand and what the data tells us.
Nick Temple is Deputy CEO of Social Enterprise UK and Chair of the Social Investment Forum. Social Enterprise UK are also delivery partners on Big Potential, and designed the Social Investment Explained guide and resources.