ARE SOCIAL ENTERPRISES MISSING A TRICK?

Social enterprises could be missing out on opportunities for growth and development because they are not taking advantage of the full range of financial options open to them. Steve Walker, Chief Executive of ART, explains.

There are many ways to finance a business – and a social enterprise is no different to a commercial enterprise in that respect. Apart from income generated through product sales or services delivery, grants, loans, factoring or invoice discounting, leasing, venture capital schemes, patient financing, philanthropic funding or share investment can all be options to consider.

ART specialises in making loans to businesses unable to source their needs from other providers – and has been surprised by how the take up from social enterprises has reduced in Birmingham and the West Midlands in recent years, in spite of the growth in that sector.

So why is that? Are the Boards of social enterprises focused entirely on searching for grant funding? Is confidence at a low level in planning for the future? Are the managers of social enterprises in the West Midlands more risk-averse than in other areas of the country?

My belief remains that reliance upon grant finance for a significant proportion of overall revenue is a precarious existence. By contrast, loan finance, increases in the capital base from other sources, can offer stability, freedom to spend money on core costs and infrastructure development, a saving in administration, and can keep organisations afloat by overcoming short term cash flow problems.

Delivery of public sector contracts is becoming an increasingly common means of generating income for social enterprises, yet many are finding that they need to increase capacity and upgrade their premises to qualify and that waiting for payment of significant sums poses a threat to their stability. So why not consider a loan to help tackle these issues?

Opportunities are growing for social enterprises with ambition and I would urge managers and directors to seek support to become investment ready and explore the various financial alternatives available to them before the chances fade away.