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How to Fund a Social Enterprise

Obtaining finance for a social or nonprofit enterprise can be difficult but new ways are emerging that can help you progress. This recipe should be read in conjunction with “How to attract funders to invest in your Social Enterprise”.

Serves – any social enterprise or charity

Preparation – time taken to prepare your social enterprise vision

Time taken – from seven days upwards

Image courtesy of Pixabay.com
Image courtesy of Pixabay.com

 

 

 

 

 

 

 

 

 

Ingredients

The following ingredients are all optional:

  • Business grants
  • Project grants
  • Venture philanthropy grants
  • Debt finance
  • Equity finance
  • Quasi-equity
  • Community shares
  • Relatives or friends
  • Crowdfunding site

Method

Look for sources of grants to help you start up your social enterprise, or to provide a platform where you have some guaranteed income as you develop the business.  There are business grants and project grants.

 

Business grants are usually one off, and sometimes come with extra input and expertise to support your venture. Sources include UnLtd, the Foundation for Social Entrepreneurs www.unltd.org, and the Big lottery’s Big Potential Programme http://www.sibgroup.org.uk/bigpotential.  Your local council or Local Enterprise Partnership for your area may also have grants available (see https://www.gov.uk/government/policies/supporting-economic-growth-through-local-enterprise-partnerships-and-enterprise-zones/supporting-pages/local-enterprise-partnerships).

 

Some grant making trusts run award schemes, such as Royal Bank of Scotland Inspiring Enterprise programme http://www.inspiringenterprise.rbs.com.

 

There are usually application forms where you have to convince the funder of the value of your proposition.

 

Also consider venture philanthropy  grants; these are usually given in a form resembling investment, and the venture philanthropist may provide long term tailored pro bono support to facilitate growth, for example try the  Venture Partnership Foundation http://www.vpf.org.uk/

 

Project grants support many different kinds of projects usually for social or community benefit, the arts, environment and heritage issues.  Apply to sources such as grant making trusts and foundations, or the Big Lottery Fund which runs many programmes.  Get in touch with us if you need help with this.  A proposal will be needed or a form completed depending on the funder.  You will need to compile a carefully crafted evidence based application with clear outcomes and an explanation of how the project will deliver these outcomes.

 

Usually, a project grant will only be considered if your organisation has a track record in delivering the service you are asking funding for.  Some trusts and foundations will only consider your organisation if it is a registered charity, though increasing numbers are now including Companies Limited by Guarantee and Community Interest Companies, so long as there are at least three unrelated people serving as Directors.

 

Projects are great for building credibility and a platform for success but don’t depend exclusively on them; they will tend to tie you down to specific project delivery and not allow much for and other expenditure you need to grow your enterprise, including overheads and marketing.

 

Other forms of finance amount to borrowing in different guises.  Whether you can obtain debt finance (i.e. a commercial loan) will depend on the merits of your business and your organisation’s creditworthiness.  Shop around for the best deals; note the lender may want security or a personal guarantee.

 

Equity finance involves the exchange of finance or capital for part ownership of the business; quasi-equity is a form of debt that has some traits of equity, such as having flexible or performance-related repayment options. You would only be eligible to apply if your social enterprise is registered as a legal form that allows you to raise equity through issuing shares, i.e. certain types of Community Interest Companies (CIC).

 

Social Investment Tax Relief (SITR) is designed to support social enterprises seeking external finance by offering a range of tax reliefs to individual investors. See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/279864/SITR_Pack.pdf and

ClearlySo www.clearlyso.com.  They are an online marketplace for social business and enterprise, commerce and investment, and they publish a Guide for the Ambitious Social Entrepreneur available free of charge.

 

If yours is a community enterprise your group may be able to sell community shares to local people to become part owners of the enterprise, see http://communityshares.org.uk/.

 

You may also be able to source funding by asking for donations or loans from relatives or friends; perhaps in return for shares.  A systematic way of doing this would be to set up a crowdfunding site to ask people to make a one off donation or a loan.  There are many different platforms – see the UK Crowdfunding Association site http://www.ukcfa.org.uk/.   You will need to win people over with a compelling argument as to why your venture  should be funded; showing a short video will help improve your chances!

The Government’s initiative Start Up Britain www.startupbritain.co has a lot of useful information and links for social entrepreneurs.  More support in shaping your business may be available the social incubators fund http://www.socialenterprise.org.uk/news/Ap10-million-social-incubator-fund-launches or from social incubators which have been set up in various parts of the UK e.g. Social Incubator North http://socialincubatornorth.org.uk/about-us/.