Commercial lenders are rarely first in the queue when it comes to financing social enterprises - yet our Finance Director Heather Dixon has found this is where social lenders can help.
I was asked recently to present at a charity seminar talking about the value of using a social funder. Caused a bit of introspective reflection… why do we use a social funder; how did we get to this place? You know the sort of thing, there’s going to be a room full of people listening to me and I don’t want to bore them witless… So, having done the thinking, here I am wanting to say more than I ever thought possible.
Decent, cost effective funding, is the bane of my working life. Top of the list of reasons why is that nobody understands us (I know, I’ve been saying that for years) but really, as a social enterprise it’s true.
“Social enterprises are businesses that are changing the world for the better. Like traditional businesses, they aim to make a profit but it’s what they do with that profit that sets them apart – reinvesting or donating them to create positive social change”.
Oddly enough that means that when you look at our accounts we don’t show a profit, because we re-invest what we make in delivering our mission – that being to improve the life chances of children, young people and families by inspiring them to engage positively in their communities. I mean, what’s not to like about that? We’re using what we make in pursuit of social improvement not for personal gain. It does not mean we do not know how to operate.
Then there’s the fact most lenders we’ve talked to seem unable to engage with the charitable sector. As far as I can figure out that’s got to be because they see us as too much of a risk? Are we really more risky than other businesses? The Insolvency Service said there were 451 administrations in the first three months of 2019, does that mean no corporate lending? Is it really that they are worried about the bad press if a charity fails? Does reputation matter more than delivering social value?
Then there’s the inflexibility, we work really hard to spend the minimum we can to maximum effect, so if we can spend £10k less on refurbishing a building we want to do just that, allowing us to use what’s left for another project. Experience says this does not work for a conventional lender. Indeed, right now there are very few conventional lenders who even seem to want to talk to us, so huge thanks though to the one that we are doing business for having the foresight to buck the trend.
So, against this backdrop, imagine my surprise when I was the only person to arrive at a seminar that had been cancelled and as a result had a long conversation with the funder who had organised it. They talked our language, understood our context and wanted to help. Amazing! We’ve just had our second substantial loan from them for infrastructure improvements. The application process was straightforward, it feels like we are working in partnership and they have a genuine interest in what we do (even providing some sponsorship for one of our fundraising events). The money is not particularly cheap but then it’s unsecured and we can use it to maximum effect.
Would we do it again? Well we have already, so the answer is yes!
Here’s some top tips to make it work:
- Have clear plans, don’t be woolly
- Be honest and up front
- Communicate proactively
- Do what you say you will, deliver on time, pay on time
“Simples”, to quote a local meerkat.