How to fund a social enterprise

What are the business financing options available to social entrepreneurs? We take a look...

As a social entrepreneur you have the choice of the same funding options available to traditional businesses. As long as your business plan is sound, and your venture’s proposition is sustainable, there’s no reason why you can’t access finance and investment as opposed to relying on charitable and government grants.

Banks

Often the first point of call for entrepreneurs and there’s no reason a simple business bank loan can’t work for a social enterprise too. The assumption that social enterprises and traditional businesses work differently when it comes to profit and loss sheets is one that you may have to talk your bank manager out of. However, if your business plan clearly demonstrates a sustainable revenue stream, and you can prove your venture is perfectly capable of repaying its debts, a bank loan could work for you.

Try the mainstream banks as well as ones geared specifically towards social ventures and charities. Social enterprises are gaining momentum in the UK and as a result, you can shop around for the best deal. Here’s a rundown of some of the other options available to you should you not wish to settle on a high street bank:

The Charity Bank: the bank lends to organisations that are registered charities, community associations, voluntary organisations, community businesses and social enterprises. The Charity Bank also offers a loan advisory service to help social enterprises access commercial finance.

Co-operative Bank: the bank funds limited companies that have accounts with them. Unsecured loans are available at a fixed rate.

Unity Trust Bank: this is a niche bank which provides a range of banking services to charities and social ventures. The Unity Trust looks for asset guarantees where possible.

Alternative finance options

Community Development Finance Institutions (CDFIs): provide financial support and capital to businesses and individuals that would otherwise not have access to, or be refused services by, mainstream financial service providers.


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They generally focus on areas and markets that are disadvantaged including voluntary and community sector organisations. The aim of CDFIs is to provide both financial support and a social impact and they are becoming more and more common.

CDFIs provide loans from £50 to £1,000,000. The average loan to microenterprises is £7,250, to small businesses £50,000, to social enterprises £43,500 and to individuals £600.

Local Investment Funds (LIF): provide loan finance to local community enterprises that are unable raise sufficient funding from traditional routes. Applicants will have to demonstrate they have tried to obtain funding from other methods first.

Private investment

Angels: as social enterprises are profit-making businesses there is no reason why you can’t pitch a venture to a business angel in exchange for equity. There are plenty of business angels out there that are after more than just the quickest return on their investment.

Venture capital: you may find it tricky to get VC firms on board for small ventures, but if you’ve got grand ambitions for your social enterprise and your projections point towards impressive profits, don’t rule out this route.

In fact, a number of investment funds and organisations have been launched in recent years with the specific aim of funding social enterprises with sustainable business models, to help them achieve a wider social impact. These funds offer investors a dual return – both financial and social – and financial returns are often reinvested to finance other social enterprises.

If you’re a social entrepreneur with big growth plans, check out:

UnLtd: a foundation which helps social enterprises seeking funding to become ‘investment ready’

The Bridges Ventures Social Entrepreneurs Fund: launched in August 2009, the fund has raised nearly £12m to invest in scalable social enterprises with the potential to deliver a high social impact.

The Big Issue Invest Social Enterprise Fund: launched in 2009, this fund can invest £50-500k in loans or equity finance (“or anything in between”) into social enterprises with sound business models. Most successful applicants will have been trading for at least two years, but newer businesses will be considered on a case-by-case basis.

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