Financing a social business

A well-run social enterprise has a medium to long-term financial strategy  which ensures sufficient capital.

 In other words, the business earns enough money from loans, share investment and retained profits  to pursue its business development plan.  

How to fund your social enterprise? 

Before looking into social enterprise funding models, take a look at the business planning process outlined in Starting a Social Business  and  Growing a Social Business. Once you’ve worked through those sections, you’ll have a better idea of your ongoing capital requirement and how much money you need for:

  • fixed capital investments (money that is invested in assets of durable nature for repeated use over a long period) 
  • long-term investment in invisibles (skills, market development and product development) 
  • working capital (the cash available for day-to-day operations of an organisation) 

You can then establish a balanced investment strategy for your social business and decide whether seeking investment is necessary. Are there alternative strategies for financing? 

For a summary of finance sources available to employee ownership businesses, see our Employee Ownership  section.


Social enterprise funding challenges 

If you’re not generating enough capital to meet your business objectives, the enterprise can face a number of difficulties, such as:

  • Over-trading: The entire capital base (loans, share investment and retained profits) of the enterprise is not enough to cover a loss which is otherwise small in turnover terms (the level of sales).  
  • Being cash poor: The enterprise isn’t able to respond to demand because it cannot afford to purchase labour or raw material.  
  • Being under-capitalised: The enterprise cannot supply an increased level of sales, which means it’s unable to pursue new opportunities. 

 Funding for a social enterprise :

Jars of money
Sources of Finance

What sources of finance are available to social businesses and how to identify the best one for your organisation.

Man reading a book and smiling
Lenders

Detailed information on lenders which have experience working with social businesses.

Man overlooking man using a computer
Books and online resources

More useful information on financing businesses for new and established social enterprises.

Help and support from Business Wales