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Finance

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Finance and Social Firms

Social Firms can need finance to help:

Finance to start up a business

A useful introduction to appropriate and possible sources of start up funding can be found in the free Social Firms UK resource, "Raising appropriate start up funding" (section D of 'The Extra Elements: A Social Firm Trainer').

Funding and finance opportunities are often linked to the type of legal form that a Social Firm chooses, so the following is also useful: "Developing the right organisational structure for a Social Firm" (section C of 'The Extra Elements: A Social Firm Trainer').

"Template Share CIC Mem & Arts" The Share CIC especially is one legal form where private investment can be sought alongside grant finance and the notes and guidance in this resource give 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 – email us at info@socialfirmsuk.co.uk

Supporting the social aims of a Social Firm

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. 

Types and sources of finance

 There is no dedicated ‘pot’ of money for Social Firms either nationally or regionally, nor does the government currently give any financial or fiscal incentive for starting up a Social Firm.  So opportunities for securing finance have to be sought out.   Social Firms UK itself is  not a grant-giving organisation so we can only signpost and inform whenever we can. Opportunities often go out of date quickly but we hope the following information is a useful guide.

These are the main sources of finance for a Social Firm:

  • Trading activities!

At least 50% turnover must come from commercial sales

  • Charitable Trusts/Misc funding organisations

There are a number of organisations such as charitable trusts prepared to consider supporting the start up or growth of good Social Firms.  The funds they supply may be one off grants and sometimes on an ongoing basis.  These organisations include:

Bids will need to meet each funder's specific eligibility criteria.  Funders will want to see a Social Firm business plan that demonstrates progress withthe trade income and plans for sustainability at the end of the funding period as well as good quality job creation within the business for severely disadvantaged people.  Be aware that many grant funding opportunities have lengthy timescales for decisions to be made and funding to be released, e.g. someBig Lottery programmes take up to one year for a project to be able to start.

Charitable trusts are increasingly taking an investment approach to funding. Esmee Fairbairn, for example, launched a loan fund where interest rates ranged from 0%-&% in 2003.  Similarly, Tudor Trust worked with Venturesome, a specialist agency which invests in growth, to make their money go further.

  • Government funds/grants

-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

  • Specialist lenders - banks with social finance expertise

There a number of social finance banks and, indeed, mainstream banks that might be appropriate for loan finance also, there are also regional bodies such as London Rebuilding Society. We suggest here that you ‘google’ and research according to need, as this is a difficult area to keep completely up to date on. The better known banks are:

  • Big Issue Invest - 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
  • Charity Bank (which has an asset finance specialist)  www.charitybank.org
  • RBS / NatWest (via their community development banking team)  www.rbs.co.uk  www.natwest.com
  • Co-operative and Community Finance (previously ICOF)  www.icof.co.uk
  • Triodos Bank - Triodos  runs the Triodos Opportunities Fund which 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 whitni.thomas@triodos.co.uk     www.triodos.co.uk 
  • Parent organisations

A local authority or charity that has helped set up a particular Social Firm may sometimes offer some kind of annual grant or help in kind e.g. marketing.

  • Workstep places

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.

  • Employment training for service users

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.

Supplementary income streams for individuals

Social Firms may be able to apply for supplementary income streams related to the supportive working environment that they are able to offer to individuals disadvantaged in the labour market.   Specialist employment services for disabled people are currently under review.  

Useful resources

 See also our finance links at http://sf.ecobee.org/resources/links