Seb Elsworth: A positive state in the social enterprise sector - for now

There are a lot of lessons from Social Enterprise UK's latest State of Social Enterprise report about how organisations access finance

Seb Elsworth (Photograph: Claudia Leisinger)
Seb Elsworth (Photograph: Claudia Leisinger)

In October, Social Enterprise UK published the results of its biennial State of Social Enterprise survey in a report called Capitalism in Crisis? Transforming our Economy for People and Planet. It addresses the barriers faced by social enterprises to scale and be sustainable, and, as in previous years, it addresses concerns about access to finance.

Interpreting exactly what is going on within the data is a little challenging because some of the questions mix up receiving grants with accessing repayable finance. However, if you strip out accessing grants from the headline barriers cited in the report, then operational challenges become more significant than a lack of access to finance.

Looking back at the survey data over the past few years there is a clear pattern in the scale of finance sought by social enterprises. While the median amount has moved slightly, from £58,000 in 2013 to £60,000 in 2015, £80,000 in 2017 and back down to £50,000 this year, these amounts are all less than was widely available from social investors until a few years ago.

In 2015 the Growth Fund was set up by the National Lottery Community Fund and Big Society Capital to address this gap. Since then it has invested in 16 loan funds, which have in turn lent to almost 400 charities and social enterprises, nearly 30 per cent of the market in 2018. The average investment size through the Growth Fund is £63,000, thus targeting the need highlighted here by SEUK.

The overall picture from SEUK regarding accessing repayable finance seems to be a pretty positive one. More organisations are applying for loans than in previous years – up to 32 per cent of social enterprises this year, compared with 23 per cent in 2015 – and an additional 10 per cent of respondents answered that they had applied for blended finance, bringing the total to 42 per cent. There is a slight increase in those seeking overdrafts, at 13 per cent this year compared with 6 per cent in 2015. The small proportion seeking equity has not changed significantly.

In terms of success in obtaining finance, most organisations seemed to get roughly what they were seeking. The median amount received was £40,000, not that far off the median amount requested of £50,000. Only 16 per cent of those seeking finance didn’t end up raising anything.

So if most organisations get the majority of the finance they are seeking, why is obtaining debt or equity finance still a key barrier cited by 18 per cent of social enterprises?

Thirty per cent said that the amount of finance available was not sufficient. This probably referred mainly to accessing grant because it doesn’t seem to reflect the evidence on accessing loans highlighted above. Thirty-seven per cent said the finance was not well signposted. Knowing where to find grants can be very tricky too: 32 per cent of those surveyed said the process of applying was not easy to navigate. That is a fair criticism of all funders and investors and something we must all continue to improve.

Interestingly, the price of investment doesn’t appear here as a barrier to accessing finance. When this question was last reported on in 2017, only 5 per cent of respondents who didn’t apply for finance said the cost was the reason they decided against pursuing this option. This seems at odds with the broader narrative that social investment is too expensive.

If the data from the survey paints a positive picture about the current availability and take-up of repayable finance for social enterprises, then the next challenge is to ensure that the supply of finance continues to meet the needs of the sector.

The Growth Fund has transformed the availability of smaller scale investment for charities and social enterprises because it is a blended model. The grant from the National Lottery Community Fund acts as a subsidy, covering potential losses and disproportionate transaction costs. However, the Growth Fund will be fully committed by around the end of 2021.

Further supply of the subsidy necessary for this sort of investment activity to happen must be secured before then or the supply of this finance will dry up. Future blended finance programmes with a broader remit could also address some of the recommendations cited in the report, allowing finance to be increasingly "more patient, more responsive, more flexible, speedier and more attuned to a social mission".

The sector as a whole should push the case for this to happen.

Seb Elsworth is the chief executive of Access, a foundation that helps widen access to social investment for charities and social enterprises

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