Lucy Findlay MBE explores common barriers to accessing finance, including her own lived experience as Managing Director at Social Enterprise Mark CIC, and challenges social investors to escape the 'business-as-usual' approach that enables inequity. 

Lucy Findlay MBE

Time and again access to finance comes out as the number one barrier to growth for social enterprises. 

In this post, I want to drill down into what we mean by the terms ‘access to finance’ and how social investors can provide more flexible, accessible solutions.

In my research for this blog, I investigated the data that originates from the State of Social Enterprise Report in 2021 (SEUK). Interestingly, the effects of Covid and the economic crisis have reduced access to debt and equity finance (social finance) as a barrier to growth from 18% in 2019 to 6% in 2021.

The much larger barriers to growth were:

·       72%: Operational issues e.g. accessing customers,
·       61%: Economic factors such as cash flow
·       36%: Financial reasons e.g. grants. 

Does this mean that social finance becomes largely irrelevant in times of crisis?  Even more so when we see the eye watering interest rate rises that are likely to see over the next year.

My thoughts are that this is not the case. However, we must see social finance within the wider context of pressures facing social enterprises and, as with any product/service, it needs to adapt, and provide flexible and hybrid products. In tandem, we also need to see social enterprises acting with a social value/sustainability head on rather than acting like corporates in their growth ambitions.

Operational issues

Putting my small business head on, I have experienced operational issues as a growth barrier over the last year or so. The major headache has been capacity and recruitment. We have seen a churn in a previously stable small staff team. 

The confines of a small team presents its own distractions as recruitment is very time consuming as well as the challenges of the collective memory of how the organisations systems and functions operate when a team of 5 are so wide ranging in their responsibilities. 

Social finance cannot really help this barrier although our social values have been key in attracting new team members with the right values.

The Cash Flow Conundrum 

Cash flow can be helped via social finance. Our invoicing profile is very variable each month, with many late payers and most of our outgoing costs being salaries paid monthly.

We identified cash flow as a key risk, years ago, and applied for a loan via Big Issue Invest based on our track record. The process was far easier than I was anticipating, with a great loan manager who explained exactly what was needed (which was not onerous) we had an agreement quickly in place.

We never needed this facility, but it did give us comfort to know that we had it in our back pocket – the downside was the higher interest rate and this might become even more prohibitive for social enterprises as the Bank of England raises interest rates further, passing this on to the investors in social finance (those who provide the money for social investors to do business, who will want a higher rate of return).

Risky Business

The key aim of social finance however, should be to grow our social impact, but debt finance can be risky and expensive. Speaking for myself, I would be very nervous of taking out such finance without a clear guarantee that we would be able to pay it back.

I’ve spoken to many other women in our social enterprise women's leadership network who second that notion, but social enterprises scale differently and there’s no one-size-fits-all solution to growth. 

Grant finance, where it’s available, is also much more appealing as it doesn’t risk the business.

The Future of Flexible Social Finance 

In order to address this barrier, we need to see much more flexibility and look to more inclusive and cooperative models.  

What is proposed in the Degrowth model of my last blog (as mentioned by Jennifer Wilkins of New Zealand based Heliocene) is Transformative Finance, i.e. more revenue based funding, peer to peer lending, membership shares and community bonds working together with exit and growth strategies being focused on eventual community/employee buy-outs rather than IPO (Initial Public Offering, the process of offering shares of a private corporation to the public for the first time).

Equity then becomes more democratic and inclusive with communities holding assets to address the polarities of wealth distribution that we are currently experiencing worldwide.

None of this is simple of course. The system that we live in is dictated by the long term demands of a capitalist led economy. We need some creative and flexible thinking for the long term. Social investors need to be at the forefront of this transformation in partnership with social enterprises.

Time for Change 

The good news is that there are already some shoots of recognition of this with a number of interesting models being invented or reinvented (e.g. Cooperative and Mutual Finance). 

We need to pressurise the mainstream economy and finance interests to think more laterally and creatively and get out of ‘business as usual’ mode. This is a huge challenge, and we can’t be naive about vested interests. We can’t wait. We need to find the solutions and get on with implementing them ourselves.

Learn more about social finance and what’s involved via the Good Finance ‘What Is Social Investment’ hub and if you enjoyed this post, check out my last blog, where I questioned what we mean by ‘growth’ and the concept of degrowth