It’s encouraging to see from the analysis that there was a 9% growth in the number of community businesses to over 5,600 in 2015 with combined income of £0.9bn. The research is useful for us at Big Society Capital – we want to make social investment relevant across the charity and social enterprise sector, including for locally led organisations delivering impact where use of investment may be more challenging.
The main things I took away from the report in relation to our work:
1) Future demand for investment from community businesses could be strong
Unsurprisingly, demand for grants is far higher than for investment, but still nearly 40% of organisations surveyed would consider loan or equity investment in future, higher than we’d expect to see for the voluntary sector in general. The familiar challenge highlighted here is that much of existing social investment is focused on supply of secured loans or larger unsecured loans, which may be relevant in some sectors such as community housing, but less so for many community businesses.
Some current initiatives should help. For example, we’re working with crowdfunding platforms as potential partners for a Crowd Match Fund which would match investment from the public into social enterprises and charities eligible for Social Investment Tax Relief (SITR), which could be a good fit for the needs of some community businesses.
Blending loans and grant so that more risk can be taken is another route to provide more appropriate finance for some earlier stage community businesses. This approach is currently being piloted by Power to Change in conjunction with social investors Keyfund and Social and Sustainable Capital (SASC). It was great to see Spacious Place, one of the recipients of blended funding from Power to Change and SASC, winning one of the Cabinet Office Social Investment awards last week, for their work in transforming a cotton mill into a community centre that also has a call centre providing training and support to help vulnerable local people back into work.
2) Local community support critical for success
From the survey, local community support was the most important factor determining success for community businesses – having a committed community ranked higher than grant financing or investment, or policy trends. Social investment could be a great way to bring local support and finance together – for example organisations such as Clevedon Pier have raised investment through community shares (and SITR), engaging 1,000 local people as investors, who are also likely to be loyal customers.
3) Growth areas for community business
The report highlights sectors where there is likely to be growth in community businesses, much of which is consistent with trends we see around demand for social investment. This includes health and social care, which is an area where we also expect to see strong potential for social investment, partly as community based delivery by the social sector offers solutions to the acute challenges for these services.
We will be exploring the role of social investment in supporting community broadband, so interesting to see this has been flagged in the report as having potential for rapid growth.
Sport and leisure has also been identified as a growth area – with existing organisations that are not completely operating as community businesses at the moment doing so in future. A shift to a community business model could increase the potential for social impact to be delivered in this area.
4) What’s in a name….
Just as the use of the term “social sector organisation” is not how most charities and social enterprise would describe themselves, the term community business is a new one, and at the report launch, we discussed the challenges organisations have faced in meeting this definition. It was good to see some of the different ways in which organisations can demonstrate the tests that Power to Change have laid out around community leadership, link to a place, community value and local returns through trading, and how the funder intends to apply these flexibly depending on the context and how the organisation is aspiring to develop.
This report underlines the “special impact” that could be created through the growth of locally led and accountable organisations who are trading for sustainability and addressing the issues that are important to their communities. Social investment should increasingly become one of the tools which enable these organisations to deliver their purpose.