Funding your social enterprise
Funding your social enterprise
Once your social enterprise is established, it should be turning enough profit to pay for any staff and costs and also profit to reinvest either back into the business or into your social mission. Initially though you may require some funds for capital layout such as stock, building and staff. There are quite a few different option for social enterprises to gain start-up funding, below are some of the most popular options available.
Community fundraising and crowd funding
This type of funding quite often takes time, particularly if you have large amount to raise for capital. Community fundraising comprises of a one off or series of events whose prime target is to raise funds for your specific project. You may find this aspect of fundraising easier if you are a registered charity. There are many options for community fundraising, from sponsored sporting events to raffles or themed evenings. One of the biggest advantages of community fundraising is that it shows investors and potential clients that the surrounding community and potential benefactors are invested enough in your social enterprise idea to support you. Crowdfunding takes away the localised element of community fundraising, offering you a chance to raise funds online without suffering from a geographical barrier. Usually groups who wish to raise funds register on a suitable crowd funding platform and offer a small token gesture in return for a donation. Again crowdfunding (if successful) shows support, not just within your local community but outwith your geographical area.
Grant funding is usually a one off payment to help establish your social enterprise. As above, having charitable status can be beneficial as lots of grant giving organisations are constitutionally bound only to give to registered charities. Although there is the clear advantage that with a grant you do not have to pay the money back, funders are often very strict on what you can spend the money on and quite often require interim and end of fund reports which can be time consuming. As a business, a social enterprise could also be eligible for business start-up grants from government agencies. Again these are not guaranteed and can be a time consuming process to apply for, but if successful it could mean some or all start-up costs covered without the business having to open with a debt.
It is very common for businesses to have a start-up loan to get established and this option should be explored fully using financial forecasts which should be to hand from your business plan. Most banks will offer business start-up loans and there are government backed start up loans which come with an advice package. Furthermore there are specialist banks such as Unity Bank which focusses on charity and third sector banking and finance requirements.
Another way to finance your social enterprise is private investors.
Business angels: as social enterprises are profit-making businesses there is no reason why you can’t pitch a venture to a business angel in exchange for equity. There are plenty of business angels out there that are after more than just the quickest return on their investment.
Venture capital: you may find it tricky to get venture capital firms on board for small ventures, but if you’ve got grand ambitions for your social enterprise and your projections point towards impressive profits, don’t rule out this route.
This is a way of issuing shares in return for finance in a community minded business. The Community Shares website defines community shares as ‘a term used to describe non-transferable, withdrawable share capital in an asset-locked entity; a form of equity unique to society legislation. Shareholders have the right to withdraw their share capital, subject to the terms and conditions stated in the society’s rules and share offer document. They cannot sell or transfer their shares to a third party in order to achieve a capital gain from their investment in share capital.’ Where a normal business may issue shares to raise funds, after the initial sale, they would have little control over what happened to that share, community shares can make sure all shares are distributed equally without being resold for profit or to a majority shareholder. The disadvantage of community shares is that a business can leave themselves in trouble if they do not have the finances to refund a share should a/some shareholders no longer wish to hold shares. If the occurs the ideal situation is to find someone else to take on the shares thereby replenishing any financial loss.
SLCVO can support your group in start up funding- contact us on 01478 612921 or email firstname.lastname@example.org