Jessica Craig
Policy Officer
Since 2015, we’ve been working with our partners to understand the funding and finance needs of community businesses and develop innovative ways of funding and supporting them. As a result, we’ve learnt a lot about how and when community businesses access money to start up, grow and diversify their businesses. We’ve seen what types of investment work best for them. And we’ve started tackling the barriers that prevent them from accessing the finance and funding they need to fulfil their ambitions.
We know that when communities have the right finance, support and enabling policy conditions, they can build stronger communities and fairer, more prosperous local economies. That’s why is essential they can access appropriate forms of finance, when they need the funds and at the scale they need. When they can easily get the support they need, community businesses can focus on creating a better, fairer and more sustainable economy for their community.
Our new report, ‘Financing the future economy’, published today, reflects on all we’ve learned. It outlines how those who back community business – from funders and social investors to all levels of government – can unlock affordable, flexible and accessible finance for community business. Here are some of our key findings and recommendations.
It’s complicated business
Community businesses draw from a range of sources of funding and finance to start up, grow and scale their businesses. Like mainstream businesses, they depend on income from trading to build financial sustainability. And they require other sources of funding like grants and loans to be able to build their revenue from trading, by expanding their services or taking on new spaces.
The wide range of different types and sources of finance can be a good thing. It means community businesses can access the financial support they need for different activities and at different stages of businesses development. Some types of finance specifically support organisations that deliver social value or can help communities to raise funding democratically from local people.
But accessing finance remains a major challenge for community businesses. The complexity of the finance landscape can make it challenging for community businesses to find what they need. They may spend a lot of time looking for the right amount or type of funding, only to find it will not come quick enough or is on terms that don’t work for them. When hours in the days are already short – this can quickly become an impossible task.
As a result, their finances often resemble a patchwork quilt of many different grants, loans, and other income streams. But simply patching up the gaps in community business finance is not sustainable. The current reality prevents them from reaching the full scale of their ambitions.
Fixing the finance landscape
To enable community businesses to achieve these ambitions, access to affordable, flexible and accessible finance, for all community businesses and at all stages of their lifecycle, is essential. This is what we describe in this report as the right funding at the right time for every community business.
There is no simple solution, and it will take sustained effort and investment from all who recognise the power of community business. But we know how, and we are ready to work with our partners to make it possible.
Recommendations for funders and social investors
Funders and social investors already recognise the value of community business through the investments they make. But they can and must go further to deliver the finance community businesses want and need. Funders should focus on simplifying their application processes and criteria to align with community businesses’ priorities. They should consider funding flexibly. Innovative products like enterprise grants can also help community businesses build their income from trading and reduce their dependence on grants over time.
Products like blended finance use grant funding to de-risk taking on a loan and can help community businesses take on social investment for the first time. But many community businesses feel that engaging with the social investment market is a costly and risky proposition While cheaper wholesale finance is needed, social investors should focus on passing on the benefits of this to communities. They should deploy more innovative approaches to meet the finance needs of community businesses. The end goal should be providing affordable, transparent and long-term investment.
Recommendations for government
We know that government at all levels has a role to play in creating access to the finance that community businesses need. Through devolution, there is an opportunity for local and regional authorities to play a greater role in strengthening community businesses and the wider social economy. This can be done through the use of existing funds to grow the social economy. Local and regional authorities can also play powerful roles in convening other funders and investors to leverage additional funds and make public money go further
Additionally, with an election on the horizon, it’s time for central government to embrace the role of community business in driving good local growth. The next government needs a coordinated approach to growing and nurturing the social economy. They must ensure that resources like dormant assets are used strategically to provide long-term, flexible investment in community business. And government can make public funding go further by leveraging more private and institutional investment in community business.
