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Cafe Nova April 08Social Firms UK often gets asked about how an organisation can access either:

a. start-up funding for their proposed Social Firm
b. finance to help grow an existing Social Firm business
c. what are the types of finance are that Social Firms access generally

Social Firms UK itself is not a grant-giving organisation and is therefore in the position of needing to inform and signpost where it can. There is no dedicated ‘pot’ of money for Social Firms either nationally or regionally and, as we know, there is currently no financial or fiscal incentive for starting up a Social Firm so it does require an element of research to identify where the opportunities exist. It is always a challenge to stay up to date with what funding and finance opportunities exist for developing social enterprises but we have made an attempt below to be as helpful as we can in this regard.

a. Start-up funding for a proposed Social Firm

• Firstly, there is one of the Extra Elements (a Social Firm Trainer developed by Social Firms UK) that is entitled Raising appropriate start-up funding for a Social Firm and we would strongly recommend downloading and reading this PDF, which is free of charge, as a starting point. It was last updated at the end of 2007 and so is fairly current.

• Because funding and finance opportunities are linked to the type of legal form that a Social Firm chooses, we would also recommend looking that the Extra Element entitled Developing the right organisational structure for a Social Firm.

• If it is a Community Interest Company that is decided upon then the notes and guidance provided in the Template Share CIC Mem & Arts will also prove extremely useful. The Share CIC especially is one legal form where private investment can be sought alongside grant finance and this resource gives an insight into how creatively it could be used in Social Firm development. The Share CIC Template is available at £10 to members and £20 to non-members of Social Firms – us if you wish to order it.

• There are a number of charitable trusts prepared to consider supporting good potential Social Firms, including Tudor Trust, LankellyChase and Esmée Fairbairn. They all have their own eligibility criteria so you’ll need to check this and obviously the quality of the application is paramount; they will all want to see a Social Firm business plan that demonstrates progress with the trade income and plans for sustainability at the end of their funding period, as well as good quality job creation for severely disadvantaged people within the business. As funders, however, that know and understand the Social Firm business model, any of these three will know what to look for in an application.

• What is inevitable is that many of the grant funding opportunities that exist do tend to have lengthy timescales for decisions to be made and funding to be released (e.g. some Big Lottery programmes take up to one year for a project to be able to start). As businesses trying to make the most of a market opportunity, the more entrepreneurial approach might be to forget the grant funding route and look instead at the more traditional routes for start-up business finance such as loans and equity investment. Again, the opportunity for this type of finance will depend on the type of legal structure chosen for the Social Firm but there is certainly no shortage of opportunity there; the Share CIC, for example, offers the chance to lever in different types of finance alongside each other.

b. Finance to help grow an existing Social Firm business

• The Social Enterprise Coalition has a publication called ‘Unlocking The Potential: A Guide To Finance For Social Enterprise’ which focuses on the different types of non-grant finance available to social enterprises. It can be ordered from Social Firms UK for £10 – us if you wish to order a copy.

• A report called ‘Foundations and Social Investment: making money work harder in order to achieve more’ was produced in October 2005 by Margaret Bolton. It outlines the gradual shift of charitable trusts to taking an investment approach, which our sector needs to be aware of and could gain from. The Esmée Fairbairn Foundation, for example, launched a loan fund where interest rates ranged from 0% to 7% in 2003; and Tudor Trust work with Venturesome, for example, to help their money go further through this specialist agency which invests in growth.

• For Social Firms specifically, there are supplementary income streams related to the supportive working environment that they are able to offer to individuals disadvantaged in the labour market. Whilst the specialist employment services for disabled people are in the process of being reviewed and changed with the Welfare Reform process, the Extra Element that might be quite helpful in this regard is the one entitled Developing supplementary income streams.

• The Community Development Finance Association (CDFA) has a section on their website called ‘Finding Finance

• Big Issue Invest’s mission is to fund business solutions that create financial opportunity, inclusion and regeneration by financing and scaling up social enterprises; they accept loan applications from all types of social enterprise. www.biginvest.co.uk

• There a number of social finance banks and, indeed, mainstream banks that might be appropriate for loan finance also. The better known ones are Triodos Bank, Charity Bank (which has an asset finance specialist), RBS / NatWest (via their community development banking team) and Co-operative and Community Finance (previously ICOF), but there are also regional bodies such as London Rebuilding Society. We suggest here that you ‘google’ and research according to need, as this is an almost impossible area to keep completely up to date on.

c. What are the types of finance are that Social Firms access generally?

To be defined as a Social Firm, a company must receive at least 50% of its income through trade. In reality most Social Firms earn much more than 50% o f their income through trade and the average is around 85%.
Following some research on Unit Cost Methodology in 2007, Social Firms UK has established a national benchmark estimate for how much it costs, however, for Social Firms to provide support to disabled employees. The estimate cost, based on researching the costs and income of nearly 30 Social Firms, is just under £6,200 for up to 12 months. It will obviously vary from business to business and will depend on the support needs of the employees within the business, but suffice to say this cost is not currently being met automatically from anywhere except through business trade income. Whilst some Social Firms may have Workstep places within the business, the amount through Workstep is less than £6,200 pa and Social Firms UK is therefore trying to get recognition from central government that this is, in fact, a relatively good value model of employment that would be worth supporting.
The rest of the income that Social Firms receive in addition to that generated by the business-led product or service, will be from a variety of places. It may be a mixture of income streams or just one or two.

Other sources of additional income are such things as:
• annual grant funding from a charity or local authority. The annual grant funding from a local authority is very rare now but grant funding from a charity is not unusual where the charity is the parent of the Social Firm. Quite a few Social Firms have been formed by a charity that continues to provide additional funding to support growing Social Firms. The support is often 'in kind' e.g. marketing and HR services or the provision of premises rather than money;
• a number of Social Firms do offer employment training to service users (usually people referred by the local authority) and for whom the Social Firm has a contract. This contract is not usually considered as income earned through trade. The only time it would be counted as income through trade is where the severely disadvantaged employees of the business are actively working with the service users as a part of delivering the contract.
• funding (e.g Big Lottery) for a particular time limited project;
• grant funding from a grant giving trust, again time limited (often 3 years) for a particular project:
• a off one grant, usually from a grant giving trust but could be from a local authority (rare). Usually provided as start up money for a particular initiative:
• Workstep. - Workstep is a national government scheme to help disabled people into employment through provision of support to employers and/or an element of contribution to the person’s salary. Some Social Firms have Workstep contracts which means they receive some finance to support the enterprise and some disabled staff, but it is not an initiative just for Social Firms – any employer might take a person on the Workstep scheme. Workstep is also subject to change in 2009 as part of the Welfare Reform, so the best place to check for changes is that of DWP or JobCentrePlus.

Potential Funding Sources

  • www.trustfunding.org.uk - database of trust funds
  • The Guide To Company Giving (www.companygiving.org.uk)
  • Esmee Fairbairn (www.esmeefairbairn.org.uk) - charitable trust, one of whose focusses is helping disadvantaged people.
  • Futurebuilders England (www.furturebuilders-england.org.uk) - a unique £215m government-backed fund offering loans-based investment packages, combined with targeted grants and professional support, to third sector (not-for-profit) organisations that are delivering, or would like to deliver, deliver public services. The majority of applicants have never borrowed before, so Futurebuilders provides sustained, flexible and individual support to ensure investees have the right financial, managerial and governance structures to take on a loan and successfully compete for contracts in the public sector. For more information visit www.futurebuilders-england.org.uk
  • Joseph Rowntree Trust (www.jrct.org.uk)
  • Triodos Opportunitiese Fund (www.triodos.co.uk) - This is a venture capital fund for social enterprises. Triodos is seeking to invest between £200,000 and £750,000 in social enterprises with a proven business model that are looking to grow and scale up their operations. For more information contact Whitni Thomas (tel: 0207 138 3209) email

Specialist Lenders

  • Big Issue Invest - www.biginvest.co.uk
  • Triodos - www.triodos.co.uk


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