“Small charities don’t take loans,” said an indignant Debra Allcock Tyler recently. As she is the chief executive of the Directory of Social Change, I’d have hoped she’d have been more forward thinking. After all, as we move into a new era of economic enlightenment, where social impact and profit are important for every organisation, debt is something even charities will have to accept.
Nick Hurd, the Conservative MP and minister for civil society, blogging on Debra’s website agreed. His vision for the Big Society Bank is to create new opportunities for third-sector entrepreneurs to obtain investment to grow. The difference of opinion is interesting, perhaps representing the old and new approaches to supporting vulnerable people.
The old school would say that charities deserve public support. That can come from collecting tins, charity shops and legacies. Most of it, though, is demanded from government. That means you and I provide the funding involuntarily through our taxes.
I prefer a more contemporary, inclusive funding model, one that gives me choice and, moreover, I’d also like a return on my investment. Is that unreasonable? I think not. It’s the way people are thinking today. It means they become involved in the cause being supported. Surely that also encourages social inclusion and understanding.
Introducing market forces into the third sector makes sense. How else will innovation be stimulated and efficiencies sought? For the social entrepreneur, it’s an opportunity; for the traditional charity director, for whom caring is more important than competitiveness, it’s an anathema.
However, to borrow money you need a few things the average charity board too rarely considers. For one thing, you need a robust business plan that defines and values the impact you’re hoping to make. Next, you need to be pragmatic about risk. For some trustees, crossing the road is too dangerous an activity to contemplate. You need to add a socially inclined entrepreneur to the mix if the storms sweeping across the funding landscape are to be weathered and survived.
Some social entrepreneurs are self appointed, have the vision but lack the experience to lead change. Take the example of James, running a start-up community-interest company forecasting a profitable £200,000 turnover in its first year. He approached a social lender to ask for £2,000. Why? Because, as with most start-ups, things were happening more slowly than he’d expected and he needed to pay himself or risk losing his house. It’s rather like queuing for an ice-cream as the tsunami roars up the beach. You need to focus on the big picture first, then consider your personal comfort.
Not surprisingly, most banks don’t get social lending; they remain interested in clear cut business propositions that are unencumbered by emotion. There are some notable exceptions, the Dutch bank Triodos being one, which insists on seeing evidence of your social purpose before they’ll give you an account.
For most in the charity and social enterprise sector, the community development finance initiative network is where they look first for funding. Those in the network take investment from public sector organisations then lend it to individuals, organisations and businesses unable to borrow what they need on the high street. These higher-risk loans can command higher interest rates too. It’s a growing movement vital to meet a growing demand. However, in many cases these lenders find it difficult themselves to expand; they’re not very entrepreneurial either. When you realise that too often they’ve been set up by a regional development agency, with core funding provided, you begin to see the problem. To be a dynamic, responsive lender you need to be entrepreneurial. It’s been reported that only 40 per cent of them are self-sufficient themselves. How can those dependent on grants to survive help others out of that same position?
New on the community development finance initiative scene are community foundations. These, in my view, are the innovators in the field. By adding “lend to lend” and “give to lend” to their donor proposition, they can access private investment.
So what can you do if you need investment and loans seem scary? Here’s where to start: first, understand who might benefit from and buy the difference you make; second, appreciate that each will be buying something different; third, find an entrepreneur to challenge your thinking – listen as they learn about your world; fourth, write a business plan and make it short, punchy and bold and fifth, talk to your local community foundation. If they can’t help, they’ll know someone who can!
Robert Ashton is a social entrepreneur, business author and big society troubleshooter: www.robertashton