How social enterprises can get money from the banks

Want to know if your social enterprise is a good candidate for investment? Read on...

Access to investment is one of the most commonly cited reasons social enterprises report as a barrier to sustainability.  39% saw lack of availability of finance as a problem according to the last Social Enterprise UK ‘State of Social Enterprise’ report.

At the recent NatWest SE100 Insight event, three different types of banker offered tips to an audience of social entrepreneurs on how your social enterprise more get investment. Josh Greenway, senior lending manager at NatWest, was joined on stage at the event by Eric Munro and James Gardner. Munro’s role is director of community banking, there to support enterprises with a social purpose. He also sits on the boards of several responsible finance organisations and is part of the advisory board for Community Shares Scotland.

Gardner is somewhat unusual in that, as well as working in external affairs at NatWest (dealing with the likes of the Bank of England and the Chamber of Commerce), he runs his own business and sits on the board of a social enterprise.  He also sits on an underwriting panel of the NatWest Social & Community Capital (SACC) Fund.

We got a load of money from RBS/NatWest and now we loan that to social enterprises

Gardner’s description of the fund was beautifully simple: “We got a load of money from RBS/NatWest and now we loan that to social enterprises. We have an unusual business model in that some of the transactions we lend on come to us from other NatWest bankers who are unable to satisfy the bank’s lending criteria and then come to us, asking if we can have a go.” Gardner was also keen to stress that social impact is assessed when loans are granted from the SACC fund. “Most mainstream banks won’t do that,” he added.  

Greenway started with some basics – yes, you will be credit searched and yes it is worth building a relationship with your lender. This was reinforced by Gardner: “If you have good news, pass it on. If you have won a new contract or taken on new staff, tell your lender, they will be interested.

"If you have bad news, also tell them. If you know you are not going to be able to afford repayments, don’t wait until the week before it’s due, speak to them as soon as you possibly can. It is a great thing to have an open relationship with your bank, delivering both good news and bad news. The sooner they know, they sooner they can work with you to find a solution to put in place.”

Here are seven things NatWest will look at before lending to a social enterprise.

1.    Character

The character of both you and the management team will be assessed. Are you trustworthy, do you have a good reputation? The payment history of individuals will also be looked at as well as the type of finance that you have and the total amount of debt.

2.    Ability

Have you done this kind of work before? What are your qualifications? Have you worked in social enterprise before? These are all questions you should expect to answer. New ventures will not necessarily be penalised for lack of social enterprise experience if they have done something similar in the past.

3.    Means

Does the organisation have assets? NatWest will generally lend up to £25,000 unsecured but above that they will usually assess if they can take some security on some property. However, “We don’t often ask for security from social enterprises,” said Gardner.

4.    Type of investment

Debt might not be the most appropriate source of finance when a business is very young or if an organisation goes through change – you might need patient capital. Work out if it’s debt or equity you need, or a combination of both? Munro advocated grants: “They might seem old fashioned but they’re the best sort of patient capital. I know they’re more difficult to get these days but it’s certainly worth exploring the option.”

Munro also took the opportunity to mention a fund that offered grants – the NatWest Skills and Opportunities Fund, which committed £2.5m last year, "to support organisations that help people in disadvantaged communities, give people the skills they need to help themselves and get back into work." A further £2.5m will be offered this year.

5.    Purpose of loan.

Make sure you’re clear what you’re going to spend the money on. Do you need more staff, for example? Is it for marketing to try and win new contracts? “Sometimes we get people who are a bit wishy-washy about the purpose which doesn’t help and we do like to know that it’s going to benefit the business,” said Greenway.

6.    Amount

Pitch it right and make sure it is not pie in the sky stuff. The bank also likes to see that the risk will be shared, that the business has built up capital reserves or that the business or directors are putting in some money into whatever you are funding. Banks might lend 70/75% for instance.

7.    Repayment

Seems obvious but banks will assess if there is sufficient profit in the business to repay loans. According to Gardner, affordability of a loan is the main reason banks will say no. “Its important for us as social enterprises that the banks understand where we are going to get the cash to repay them. “If your profit covers your annual loan repayments two times over you’re in a really good place,” added Greenway.

Photo credit: Ollie Whittall