Social enterprises hungry for working capital, shows new report
Social enterprises, businesses with a social or environmental mission, are increasingly in need of working capital to finance their operations and deliver contracts, a new report from Social Enterprise UK and the Access Foundation has found.
The report also found that larger amounts of finance were likely to be raised by social enterprises in the most deprived areas, and that a large minority continue to apply for grants as part of their income mix.
‘Prospecting the future’ provides a snapshot of social enterprises operating in the UK and their finances. The research draws on findings gathered between 2011 and 2015*
By amount and purpose:
- The average median amount of finance raised is consistent at around £60,000
- More than a third of social enterprises have applied for some type of grant each year (36% in 2015, 43% in 2013 and 28% in 2011), even if only a small proportion of their turnover
- Over the years, an increasing number of social enterprises have sought finance for working capital – from 28% in 2011 to 35% in 2013 and 43% in 2015 (likely indicative of a more challenging operating environment - restricted contracting arrangements and tighter margins)
- When seeking finance, leisure trusts and housing associations are the most successful, raising more than 100% of what they apply for (due to their large size and track record, but also they commonly own assets and have the opportunity to seek secured lending)
- In comparison, Community Interest Companies (CICs) are more likely to seek smaller amounts of finance, perhaps reflecting that many start-ups choose the CIC structure
By region / locality:
- Between 2011 and 2015 social enterprises in the North have applied for the most finance (on average £90K a year, compared with £78K a year in the South, and £50K a year in the Midlands)
- Between 2011 and 2015 social enterprises in urban areas (which tend to be larger), applied and raised larger amounts of finance (on average applied for £73K a year, raised £52K) than those in rural areas (applied for £37K, raised £39K)
- There is some evidence that rural organisations may be slightly more successful in raising the full amount they apply for – perhaps because of their smaller scale nature or because of specialist support
- Between 2011 and 2015 the amounts of finance applied for and raised were higher in the most deprived areas of Britain, and lowest in the least deprived (on average, social enterprises in the most deprived areas applied for £89K a year and raised £64K – and those in the least deprived areas applied for £30K a year and raised £22K)
Peter Holbrook, Chief Executive of Social Enterprise UK, said:
“Research shows that access to finance has always been an important issue for social enterprises and is one of the key barriers for those both starting-up and seeking to grow. This report delves deeper into the finance data we have to identify trends over the last few years, and in different regions and sectors. This helps us not only understand the finance needs of social enterprises in more depth, but also to inform the design of social investment programmes and initiatives. With our partners at the Access Foundation, we hope the report is valuable and an important milestone in helping to improve the openness and quality of the data available in the field.”
Seb Elsworth, Chief Executive of Access, said:
“This report adds further weight to the case that social enterprises need access to smaller loans and blends of loan and grant which can help them to grow. The role of Access is to make sure that more of the right size and type of finance is available. We are open to expressions of interest from organisations who want to play a role in providing this sort of finance to social enterprises”.
‘Prospecting the future: social enterprise and finance data from 2011-2015’ is available to download here.