Social entrepreneurs can get better finance deals from mainstream banks than specialist investors, the boss of the membership body Social Enterprise UK has warned.
Peter Holbrook told an event last week it was “disheartening” that banks often offered cheaper loans to social entrepreneurs than the social investment market that was supposed to serve them.
Holbrook also said entrepreneurs should be prepared to enter into difficult negotiations when borrowing money, because there was no “easy route” to getting the right investment.
Responding to a question about the availability of affordable capital to larger social enterprises, Holbrook said: “One thing I have always heard from the social investment market is that interest doesn’t really matter.
“And actually, when you are running a small business, or even a medium-sized business, interest rates really do matter.
“The price of your capital does actually matter. I think it is really disheartening when you can go to Barclays and get a cheaper loan than you can get from the social investment market.”
He added that he “totally understood” some of the constraints that prevented social investors offering more generous terms to entrepreneurs.
Holbrook also raised concerns about whether social enterprises were able to access loans when they most needed them.
“I do think there is not enough risk tolerance built into the social investment market,” he said.
“There isn’t enough at an early-stage position. And that is when most social enterprises are actually desperate for capital, to get them up to that first point and milestone in their scaling.”
He cautioned social entrepreneurs not to let their values and mission get in the way of sound financial planning.
“Sometimes social entrepreneurs, and I used to be one – we want everything, and we think that what we are doing is so, so important that we deserve an easy route.
“Actually, negotiating any sort of deal worth £1m or a quarter of a million pounds is always going to be a bit tricky.”
Speaking earlier on the same panel, Karen Mattison, co-founder of the social enterprise Cook for Good, said: “The social investment market itself is not great at the moment.
“I think they are charging really high percentage interest rates, [and] it is really tying social entrepreneurs’ hands behind their backs. It really needs to be looked at properly.”