Social investment "too expensive and too difficult," claims SocEnt leader
Criticism of social investment dominated the conversation at a Social Enterprise Question Time session during the NatWest SE100 Leadership event in Edinburgh on 9 March.
Chairing the panel was Eric Munro (above, far left), director of community banking at NatWest RBS. It was his provocative opening question that took up most of the available time.
"Access to finance is often said to be the main barrier to growth for social enterprises, but to the outside world there seems to be an awful lot of intermediaries with an awful lot of money that are not getting it to work. So what's the problem?" asked Munro.
The price is wrong and the management arrangements are wrong
Salient points about a disproportionate amount of start-ups and a lack of understanding about the individual nature of many social businesses were made by James Salmon of social investor Big Issue Invest and Elaine Lilley, CEO of EBP respectively.
The spark that lit up the debate was Social Enterprise Scotland CEO Fraser Kelly's assertion. "The price is wrong and the management arrangements are wrong," he said. "It's too damn expensive to get money. The management arrangements are often not structured properly for individual organisations."
Kelly (above, centre) refuted Salmon's point that too many early-stage businesses meant there were not investable propositions.
Referring to a 2015 census of 1,000 social enterprises in Scotland, Kelly said: “60% of those are operating at turnover levels of under £100,000. So it’s not just the early stage of it, it's that most social enterprises are at micro-business level so the lenders find it very, very difficult to take a position on that.”
Sean Dennis of Let's Do Business, a community development finance institution, thought that, although there was plenty of money around, it was the wrong type of finance. "There is perhaps too much funding available to make businesses investment-ready and not enough for businesses who were already being financed to take further loans to scale up on the right terms."
An increasingly animated Kelly stated that: "The commercial lending industry will not operate below £250,000." Referring to Munro he said: "If you operated in that space, Eric, you would probably have to charge a management fee that would probably equalise the price at 9%."
Kelly also criticised the lack of co-investing. Responding to that, Tracy Thomson, loans officer at Social and Community Capital, the part of NatWest that invests in social ventures, said: "We are tiny but we are banging the drum to say ‘we are here’ and we want to do co-investing with other organisations because you are splitting the risk."
Social entrepreneurs wishing to attend future NatWest SE100 Social Business Club events can find out more at https://se100.net/. For more on Fraser Kelly, read the Black Cab Interview in the latest edition of Pioneers Post Quarterly. A film of the interview will be posted on the Pioneers Post website soon.