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LENDING TO CO-OPERATIVES & SOCIAL ENTERPRISE

a view from Cambridge CDA: an exclusive local lender

March 2004

CONTENTS
Executive Summary Introduction History of CCDA loan fund Research into finance issues for local CSEs
(Co-operative and Social Enterprise)

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Evaluation of CCDA loan fund EEDA project support Lessons for existing and emerging CDFIs to CSEs Conclusions Bibliography Appendices
i.

ii.

Research questionnaire and full findings Publicity generated over 15 month period to encourage new loan applications

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EXECUTIVE SUMMARY
In recent years, there has been a marked growth in the level of interest in ‘social enterprises’1 by national Government. This has led to a greater awareness of the specific needs of this sector across a wide range of issues including training, employment, delivery of public sector services and finance by both mainstream support agencies and private sector bodies including businesses and banks.

The purpose of this report is to profile the issues surrounding loan or debt finance for social enterprise from the perspective of the Cambridge Co-operative Development Agency (CCDA), which has been operating a small development loans fund exclusively for co-operatives and other forms of social enterprise (CSEs) in the Cambridgeshire area for over 20 years. Such loan funds have become to be recognised as ‘Community Development Finance Institutions’ (CDFIs) – sustainable, independent financial institutions that provide capital and support to enable individuals or organisations to develop and create wealth in disadvantaged communities or under-served markets2.

Through research conducted by CCDA in the summer of 2003 into local CSEs’ experiences and attitudes towards finance, and coupled with an introspective evaluation of the way in which it operates this fund, it is hoped that providers of finance and other forms of support to social enterprise in a wider arena will benefit from gaining a greater understanding of the needs and issues of this sector as well as learning from the experience of CCDA about operating a CDFI exclusively for social enterprise. This research into local CSEs found that their attitudes and needs in accessing debt finance differ very little from that of mainstream business. Further, that there is a growing understanding amongst mainstream financial institutions about the nature and culture of CSEs, making them more open to considering applications from them for loans. The evaluation of the CCDA loan fund itself also shows that the needs of CSEs in respect of debt finance from a local CDFI have also changed significantly in recent years; this, together with high transaction costs associated with operating the fund call into question the economic viability of offering such support in isolation from other support measures and programmes.

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A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners, DTI SEnU – ‘Social Enterprise: A Strategy for Success’, 2002 2 Community Development Finance Association website: www.cdfa.org.uk

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INTRODUCTION – why don’t CSEs use the existing routes to finance like other businesses?
One of the key issues that social enterprises face is the lack of access to appropriate and affordable finance; this has been identified by the DTI's Social Enterprise Unit (SEnU): "...many social enterprises are undercapitalised and struggle to access external finance, particularly when starting up, growing or moving away from grant dependancy. Ensuring appropriate finance...is available to social enterprise is key to enabling the sector to develop and grow."3 One of the key factors is that finance providers have been unsure of the risk and appropriateness of lending to the sector and this is largely based on a lack of understanding of the sector itself and in there not being readily accessible materials profiling the experiences of lending to social enterprises4 Another key reason identified in the SEnU strategy document is that: "...at present, too many social enterprises appear to have underdeveloped financial management and business planning skills. This means that they present themselves poorly to potential lenders and investors, who see them as a high-risk business."5 Further, many CSEs are located in areas that are seen to be 'high-risk' owing to statistics on unemployment figures, household income, skills shortages, etc. This means that not only will these enterprises struggle to access finance from mainstream institutions6; but also that should they be successful in their application, it will inevitably be more expensive than it would be for an enterprise based in a more 'prosperous' area - the Bank of England in 2000 found that lending to high-risk enterprises in deprived areas had an average interest rate of 4.12% above base rate compared with 2.72% for the UK as a whole7. This is of particular concern, as owing to their very nature, CSEs will usually gravitate to areas of deprevation owing to their explicit social aims and objectives. Finally, 1 in 5 of all business in the East of England currently have concerns about being able to raise development finance8. If this is true of the mainstream business sectors whom the banks can relate to and understand, the ratio of enterprises trading within the social economy where banks have less understanding and sympathy must suerly be much higher. In all, this makes for a bleak picture for CSEs being able to attract and secure funding for start-up or development costs - yet this is a key strategy in not only the
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Social Enterprise – a strategy for success, DTI SEnU 2002, p8&9 Ibid, p27&28 5 Ibid, p68 6 economic prosperity & social inclusion, EEDA, 2001 p.140 7 Finance for Small Business in Deprived Communities, Bank of England, 2000 8 competitive business, EEDA, 2001 p.69

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Governemnt’s agenda, but also those of the Regional Development Agencies and other development bodies. Underlying this issue of the difficulties that CSEs face in securing debt finance is a drive to encourage them to seek finance beyond their ‘traditional’ sources of grants and donations. This impetus is based on both internal and external forces: local authorities and trusts are being seen to have increasingly less amounts of money to distribute to local groups and enterprises which operate for social benefit, and many enterprises are restricted in their activities by constraints placed upon them by terms and conditions of grants they receive.

Developing trading activity is therefore a way of both sustaining the social benefits being delivered by groups in the community while lifting restrictions placed upon them by grants. However, one such restriction, as evidenced by the European Social Fund, is that activity funded cannot generate revenue for the applicant organisation – this makes it very difficult to therefore begin to trade; the most common solution to this problem is for groups to take on loan finance. And the benefits of doing so can be identified as9: • • • • • • • ‘Topping-up’ other revenue Create a capital investment to generate future income Address short-term cash flow problems Allow a change in the direction or scale of an enterprise Attract more resources Generate a greater investment in the community, thus giving that community greater control Offering a greater independence than is available through grant finance

There also exists a strong aversion from CSEs to certain types of other investment that are used and favoured by mainstream business: • equity investment, venture capital, etc This form of investment can often lead to a loss of control over the enterprise by its founding group which they will seek to avoid; further, many CSEs do not actively seek to generate large surpluses on investment or trading activities to return as private profit for a select group of private individuals – this can act to deter venture capitalists from pursuing such organisations to lease or sell property which the enterprise may own Anecdotally, there is very little experience and skill within the CSE sector for organisations to pursue this option. This is evidenced by the fact that very few such enterprises are generating an income in this manner factoring

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a guide to loans for social enterprise, Bristol Area Community Enterprise network, 2001

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This relies very much on the enterprise being willing to ‘lose’ some of the value of its sales in order to strengthen its cash flow. It also relies on enterprises being happy to accept a ‘distancing’ from themselves to their customers; as a key cultural value of CSEs is the importance of relationships, it is hard to see how they would be willing to use factoring at such a cost to their identity • overdrafts Many CSEs are often dissuaded from using overdrafts owing to high interest rates levied on them share issue Many CSEs are increasingly structured as guarantee companies and so this prohibits them from raising funds through a share issue; further, for local enterprises, their attractiveness as an investment opportunity is often minimal as they are not seeking to maximise the financial return to shareholders. This raises the issue of the role of shareholders in an organisation if they are not investing to ultimately benefit from a personal financial gain, especially with larger CDFIs using this route to increase their total fund, but is one that is too broad to be explored within the confines of this report. ‘going public’ (becoming a plc) As with venture capital, this option begins to create a loss of self-governance for the enterprise and further, relies on a scale of operations and profitability of enterprise with few CSEs can currently claim to attain.

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History of CCDA loan fund –
Cambridge Co-operative Development Agency (CCDA) was established in 1982 in order to meet a need to deliver support to democratically owned, and what are now classified as other forms of social enterprise, in Cambridge at that time. At the time, CCDA was the only specialist business start-up support agency and as such, it received much support from the local City Council in both receipt of revenue funding to deliver its services, but also in investment to a loans fund that it administered inline with meeting its own objectives and those of its principle supporter, the City Council.

This loans fund was set up at same time as CCDA as there was recognition of the need for such a resource from mainstream financial providers not showing any real understanding of the different nature or culture presented to them by CSEs, when they were approached by them for loans or overdrafts. These enterprises were therefore often refused finance despite having a viable business plan or proposition.

As well as attracting support from local authorities, the loan fund was also developed through donations from co-operatives it has delivered support to: Delta-T Devices was one such group who gave a one-off sum to further build the fund as part of their commitment to supporting the wider co-operative sector.

The success of the loan fund can be seen by its having lent out nearly £80,000 over the last 20 years from a starting capital investment of £5,000 without any planned formal publicity programmes. Current figures show that the total capital invested in this fund since its formation has now been lent out more than 4 times, demonstrating not only a need from within this sector for such a fund, but also evidence of high demand for it.

The appraisal process for approving loan applications was developed on a peer-topeer model. This is delivered through a panel made up of CCDA board members, (who are drawn from local CSEs and who voluntarily give their time), structured as a working group. The key reasons behind choosing this structure were two-fold: firstly, it was felt that any loans were more likely to be repaid if the recipient perceived it to have been made to them by their peers rather than a ‘faceless’ bank; and secondly, to overcome the barriers which they were experiencing with mainstream financial providers at that time.

A maximum amount on a loan to any CSE was set at £4,000. This was done so as to complement existing CDFI provision available in the area from ICOF (a national

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CDFI); further, it has since been recognised that often, only small amounts of cash are needed by enterprises in various stages of development10.

When applying for a CCDA loan, CSEs are not asked to provide any personal security: instead, a debenture against the assets of the business is issued and the decision to lend is based solely on the strength of the business plan. This further removes some of the barriers to accessing finance, as many founders of CSEs are either unwilling or unable to offer personal guarantees.

As has often been acknowledged, the administration and transaction costs of any CDFI or micro-credit scheme are usually much higher than for more traditional finance providers11. For CCDA, these costs are subsumed into its overall operating costs incurred through the delivery of its range of core services of support (access to finance being one such core service, hence the funding of its administration), as it does not seek to use this resource to generate large returns, rather to provide a means of support for CSEs who may need to call upon it.

The actual fund is held within CCDA’s main deposit accounts and is annually audited as part of the Agency’s overall activities. The reason to do this, rather than create a separate legal entity to ‘own’ and manage the fund was taken owing to its relatively small size. Further, through not seeking private subscriptions or deposits to it and so not requiring it to be regulated by the FSA, it is easier to manage and is much easier for the running costs to be built into CCDA’s main activities.

The most common reason for applications to be made to the loan fund, and increasingly so in recent years, is in respect of incorporation fees. This may be for several reasons – CCDA always recommends that any group wishing to incorporate with a co-operative governance structure do so using the legal services of CooperativesUK, the national federal body for the co-operative movement. This is due to the support and specialist advice that can be accessed through it as well as other benefits such as access to ongoing legal support, for a relatively small fee. However, this fee is still higher than might otherwise be incurred if a group were to incorporate using another route. Therefore, CCDA offers interest-free loans to groups in respect of their incorporation fees and require that the sum be repaid as soon as the newly formed enterprises is able to (usually within the first year of generating a financial surplus).

Historically, many loans have made to provide ‘working capital’ to strengthen the cash flows during re-furbishments or initial investments in new machinery and equipment which was yet to generate the anticipated increased revenues for CSEs. However, as has already been noted, in recent years loans are being increasingly made against incorporation costs. This is perhaps due to increased understanding on the part
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Finance for Small Business in Deprived Communities, Bank of England, 2000 p7 Ibid p.25&29

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of mainstream banks when CSEs approach them seeking relatively small amounts of capital12; an increased willingness for individuals to ‘put their own money in’ to a new venture; a need for a ‘quick decision’ which CCDA cannot always provide (as loan applications can take up to 8-10 weeks to be appraised using the current peer model); and finally, an increased awareness about the importance of legal structures and the need to ensure that an enterprise is properly constituted from the outset – and so an increased need for specialist legal support which is often more costly than more traditional methods of incorporating an enterprise.

this is based on anecdotal evidence gathered from social enterprises for whom a majority of their income is derived from trading activities, during research conducted in 2003

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Research conducted in summer 2003 into local CSEs finance issues
In summer of 2003, and as part of project funding being received by EEDA at that time (see later section), CCDA undertook to research financial issues affecting CSEs in Cambridgeshire. As the Bank of England had recently published it’s paper and research on this issue from a national perspective, it was felt appropriate to use the same framework and questions locally in order to provide a meaningful and compartative ‘benchmark’ for the findings. This research found that were significant similarities between CSEs nationally and locally around the issues of not seeking external finance (no identified need, risk averse); the types of finance sought (bank overdraft and CDFI loans); the types of finance currently being used (bank overdraft and Hire Purchase - HP); the needs for external finance; and the planned financing of future growth. But perhaps more importantly, this research also shows some marked differences between CSEs nationally and locally. These differences are concerend with the ways in which they are seeking to develop their future trading activities and the barriers they identify to realising that growth. Locally, CSEs are only considering a narrow range of future financing options, whereas nationally, CSEs are open to a much wider range of financing routes. Also, at a national level, CSEs see access to finance in the broadest sense as the main barrier to their future growth, whereas locally, CSEs see access to grants as the biggest problem.

Reasons given for not seeking external finance
90 80 70 60 50 40 30 20 10 0 no need risk averse prefer grants legal restrictions other

All SME National SE Local SE

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SME = Small and Medium sized Enterprises; SE = Social Enterprises

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All types of finance sought
45 40 35 30 25 20 15 10 5 0 venture capital CDFI loan bank loan overdraft share issue grants asset finance mortgage members other All SME National SE Local SE

Current external finance being used
40 35 30 25 20 15 10 5 0 overdraft mortgage factoring credit cards other loan HP

All SME National SE Local SE

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Reasons given for current use of external finance
35 30 25 20 15 10 5 0 develop trading refurbishment cash-flow building costs working capital equipment other

All SME National SE Local SE

Level of change in use of external finance over last 3 years
70 60 50 40 30 20 10 0 All SME National SE Local SE increase no change decrease

Applications for finance rejected
100 90 80 70 60 50 40 30 20 10 0 All SME National SE Local SE

yes no

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Financing of future growth
60 50 40 30 20 10 0 members surplus leasing grants equity other bank loan All SME National SE Local SE

Barriers to developing trading
50 45 40 35 30 25 20 15 10 5 0 access to grants access to finance the market-place lack of premises lack of cash-flow lack of demand lack of staff

All SME National SE Local SE

These findings raise some key issues about the CSE sector locally – namely that like its counterpart nationally, it is more risk-averse than maintream business (but beyond that, is broadly in-line in respect of most other financing issues); it identifies similar needs against which to seek external finance; but crucially it still sees that grants are the key to its continued growth whereas nationally there would seem to be an acceptance that CSEs must seek more maintream sources of finance to develop themselves. This issue over access to grants is one that raises several key questions in light of key funding streams, including ESF, coming to an end within the next few years and at the same time, an increasing number of groups from the wider voluntary

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and community sectors making increasingly large demands on increasingly smaller funds from other grant-making bodies. It also calls into question the long-term viability of local CSEs, perhaps signaling a need for a programme to both develop their financial skills in order to begin to access non-grant sources of finance, and also to develop their confidence to actively seek them and oversome their aversion to the risks associated with finance.

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Evaluation of CCDA loan fund against other CDFIs –

CCDA is not exclusive in being recognised as a ‘CDFI’ for social enterprise, although it is unusual in that it operates in such a narrowly defined geographical area and is exclusive to CSEs within that locality. Further, the total size of the fund (never more than £20,000 in its life), also makes it unusual as one of the smallest CDFIs in the country.

The history of the management of the fund has shown that there is always a great reluctance to write off any bad debts; ways are always sought in which a ‘struggling’ enterprise can be better supported to avoid closure, either through direct intervention by CCDA or by other means. This had led to a number of CSEs continuing to trade beyond a stage where most mainstream financial institutions would have accepted their closure and written off the debt – this way, jobs have been better safeguarded and enterprise activity sustained. It has also meant that CCDA has been much more supportive of the CSEs it has lent money to than perhaps other mainstream providers would have been, thus increasing the cost to itself in making and securing the repayment of the loan.

The appraisal process for a loan is relatively informal: application is made through the submission of a business plan that is developed with support from CCDA workers, and a subsequent meeting is held with a review panel. This meeting is largely unstructured, beyond the need to make a decision as to whether to approve the loan or not, and so allows opportunity for CSEs to share their experiences and skills with each other – currently, no formal consistent structure in terms of using standardised questions, scoring, etc exists. This process means that each application is judged on own merits, this creates a benefit in that it allows for the wide variety of diversity in CSEs to be recognised and encouraged. However, it also makes the process more time-consuming and less clear to applicants about how to best present their application. This time factor can also act as a deterrent to applications being made as it can take up to 8-10 weeks from an initial application being formally submitted to a decision being taken and the funds being transferred – this is an extreme scenario, but highlights that owing to the diverse background of any appraisal panel, it can often be difficult for it to agree a mutually convenient date to meet.

In charging relatively low interest rates (5% per annum on the balance), CCDA is not seeking to generate financial surplus on the loans it offers, rather to safeguard the total fund for the benefit of future CSEs. This reluctance to charge a commercial or higher than commercial rate owing to the relatively high administration and transaction costs is determined by a number of factors: • The length of time it can take for an appraisal already acting as a deterrent, and so CCDA seeking to actively remove other barriers
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• •

CCDA not having a need to recoup administrative costs incurred in making and reclaiming loan repayments as these are subsumed into the ongoing operating costs of the Agency Seeking to encourage CSEs to become more commercially viable and ‘business-orientated’ through supporting them to develop financial skills, by CCDA workers supporting them to develop their application, which will enable them to better present an application to mainstream providers in the future Introducing the concept of loan finance at a relatively low cost to encourage CSEs to begin to accept the benefits and costs of loan finance

Finally, successful applicants receive a higher level of ongoing support from CCDA than CSEs who are not debtors to it in the same way. This is not a deliberate policy, but an effect of the Agency wishing to safeguard its investment and protect the loans it makes as best it can in order to support other CSEs in the future. Interestingly, in recent research conducted amongst CSEs in the East of England14, the positive and negative attitudes found towards mainstream banks can be seen to be counterbalanced by CCDA’s loan fund, although it also compares unfavourably against some of the more positive features CSEs perceive of the banks:

Lend me your fears: Lending, borrowing, saving and earning - Social Enterprise finance in the East of England, The Guild, 2004; also note that the research used from this relates to perceptions of the mainstream banks only

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Positive attitudes to banks Brand strength. Seen as financially stronger, more robust and trustworthy Complex transactions managed with ease Local presence

CCDA Not seen to have great financial security Can be lengthy process to secure loan No ‘physical’ presence like the banks

Negative attitudes to banks Requirement for matched funding

CCDA

High deposits sought. Not designed for needs of charities

No deposits sought Designed and operated with needs of CSEs in mind (many of whom are ‘emerging’ from the charity sector) Ongoing support Not seeking to generate profit, rather a surplus to strengthen the fund for future CSEs Specialist knowledge of alternative legal structures

Confidence of local authorities, trustees International/export experience

Low awareness of loan service amongst local authorities Local experience only

Fair weather friends Profit making motive incompatible with social economy. Not geared up to deal with alternative legal structures i.e. cooperatives Out of touch with sector needs High charges

Seen as cheaper than social economy specialists

Good personal relationships Preferential rates/low charges

Seen as more expensive owing to relatively small size of loans available and time needed to arrange them Good relationships with CSEs taking on loans Low charges on loan, no charges for appraisal or set-up

Seen by many to be central to the sector in terms of knowledge Low charges on loan, no charges for appraisal or set-up

SE attitudes to mainstream banks, as shown in ‘Lend me your fears’, The Guild, 2004

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EEDA support/recent project activity
During 2003-4, CCDA successfully applied to EEDA to secure funds to further strengthen its loan fund, to undertake a planned publicity campaign for it and to formally evaluate it.

The success of this application was based largely the fund being clearly seen to be contributing significantly to EEDA’s strategy for the region which seeks to: "find new sources of finance for business growth”15 "invest in success" 16 "deal with financial exclusion" 17

Further, EEDA's corporate plan, activity 5 (section 4), further states that support is to be given to SME businesses in accessing finance and recognises that currently one group of SMEs that struggle to gain access to finance are social enterprises.

Despite a significant level of acivity to attract loan applications that was able to be undertaken with this support; including press releases for coverage in local media, presentations to start-up groups and referall partners, specific publicity materials being generated and widely distributed over a 15 month period; CCDA has noted a marked reduction in the number of applications it received in this period against those in preceeding years.

This reduction in applications to the loan fund may be for one, or more, of several reasons: • • • • CSEs are now becoming better understood by mainstream financial providers and so are transacting all their financial business with them CSEs require much quicker decisions to be made against a submitted loan appraisal than CCDA is currently able to offer them CSEs are starting to be able to finance growth through trading surpluses and becoming more aware and better able to apply for grants CSEs may be seeking to maintain all their financial ‘products’ with one provider in order to secure improved terms

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EEDA Corporate Plan 2002-4, p.4 Ibid, p6 17 Ibid p14

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LESSONS FOR OTHER CDFIs
It is always important for any agency seeking to support CSEs that they learn from the practice and example of others in the field – this can reduce the time needed to develop new support systems, and identify and avoid common mistakes which minimise wasted efforts and loss of value.

From the perspective and experience of CCDA, in its capacity as a local exclusive CDFI, there are therefore a number of issues that have been identified that should be noted by other Agencies seeking to develop similar exclusive CDFIs for CSEs

BENEFITS OF CCDA LOAN FUND: • • • • • Low interest rate Peer appraisal Ongoing support to applicant Part of a wider integrated package of specialist support Enables incorporation using specialist agents

BARRIERS FACING CCDA LOAN FUND: • • • • Time needed and taken for appraisal Administrative and transaction costs subsumed into operating costs so a need to ensure sufficient surplus/income being generated by CCDA to recover them Loan could be perceived as another financial arrangement for applicants who may prefer to keep all costs and liabilities with single finance provider for ease A 15-month campaign of targeted mailings, profiling in local media and promotion through networking meetings and referral groups and partners was seen to be ineffective in encouraging an increased level of applications. Therefore a more widespread awareness-raising campaign is needed – such a campaign would be costly without dedicated resources which CCDA cannot easily secure

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CONCLUSIONS
Through having undertaken a formal review of CCDA’s loan fund and conducting research into CSEs experiences and attitudes towards finance locally, there are a number of recommendations that can be made: 1) That a programme of financial literacy and overcoming cultures of riskaverseness to debt finance be developed and delivered. This is in order that local CSEs not only remain abreast of their counterparts at a national level, but that they also minimise the risks they will be exposed to in an environment of reducing grants in the coming years 2) That any agency seeking to develop a CDFI, exclusively for social enterprise, carefully consider the appraisal process it will implement to evaluate applications – peer appraisal may offer many benefits, but has a cost of being more time consuming than more traditional scoring methods used by mainstream providers of finance 3) That support agencies work to develop financial resources that will enable groups incorporating to better access specialist provision, the cost of which would otherwise be a deterrent to them developing into an established CSEs. 4) That any CDFI carefully consider how it will fund the transaction and ongoing support costs in incurs in respect of successful applications – charging high levels of interest may begin to recover these, but would ultimately act as a deterrent to the applicant enterprises and groups 5) That any would-be CDFI carefully plan how it will attract applications

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Bibliography
⎯ Setting up a local social investment fund, icof, 1999 ⎯ No Limits conference report – exploring barriers and solutions to financial and social exclusion in the east of England, ERCC/EEDA, 2001 ⎯ Finance for small business in deprived communities, Bank of England, 2000 ⎯ A guide to loans for social enterprise, Bristol Area Community enterprise Network, 2001 ⎯ Financial engineering, Gabrielczyk, 1986 ⎯ Lend me your fears: Lending, borrowing, saving and earning - Social Enterprise finance in the East of England, The Guild, 2004

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APPENDIX – research into SE financial issues
QUESTIONNIARE: FINANCING CO-OPERATIVE AND SOCIAL ENTERPRISES QUESTIONNAIRE

Name of Business Size (no of employees) Annual turnover Date established/number of years trading

If you have never sought external finance (loans, overdrafts, etc), is it because:
No need Prefer grants Don’t like the risk Not enough income Not enough assets to secure the loans against Banks don’t understand your organisation Legal restrictions to prevent borrowing Other:

If you have applied for external finance applied for in the past, what types were they?:
Overdraft Bank loan Loan from CDFI (i.e. ICOF, CCDA development loan) Share issue Venture capital Asset finance Grants Mortgage Other

Types of external finance currently being used:
Overdraft Leasing or Hire Purchase Secured Loan Credit cards Unsecured loan Commercial mortgage Factoring Other loan Other:

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Why do you/would you seek external finance?:
Buy a building Buy equipment Cover cash-flow difficulties Develop trading activity Working capital Refurbishment Other:

Over the last 3 years, would you say that your use of external finance has: Increased/decreased/remained the same/don’t know Have you ever been rejected in an application for external finance? If so, why?:
No collateral Bank too cautious Bank wouldn’t lend to social enterprise/non-profit making enterprise No track record Problems with business plan

How much does your current external finance cost? i.e. what % charge do you pay on your loan/overdraft

How do you plan to finance future expansion in your trading activity?:
Grants Profits/surplus Bank loan Cash from members Leasing Other:

Do you currently have any problems in expanding your trading activity?: If so, is it because:
Can’t obtain external finance Problems in accessing grants Lack of qualified staff Lack of appropriate premises Lack of cash Lack of demand No demand from local market for goods/services

Would you be happy for us to contact you to discuss this research in greater depth at a future date?
Please return this completed form in the pre-paid envelope to Cambridge CDA by July 7th

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QUESTIONNIARE RESULTS
NB – all figures given as percentages (response rate was 36% of 25 targetted CSEs in Cambridgeshire)

Reasons for not seeking external finance
All SME no need risk averse prefer grants legal restrictions other 82 7 0 0 11 National SE 26 21 16 4 33 regional SE Local SE 60 20 0 20 0

All type of finance sought over life of enterprise (if any)
All SME overdraft bank loan CDFI loan share issue venture capital asset finance grants members mortgage other 39 32 5 2 3 11 1 0 2 4 National SE 29 29 17 2 2 13 2 3 0 3 regional SE Local SE 25 0 25 0 8 8 17 0 17 0

Current external finance used
All SME overdraft HP loan credit cards mortgage factoring other 34 15 26 16 7 2 0 National SE 26 21 27 15 8 1 1 regional SE Local SE 33 25 8 18 8 0 8

Reasons given for need for finance (if any)
All SME building costs equipment cash-flow develop trading working capital refurbishment other 7 27 15 17 15 5 14 National SE 32 15 23 9 4 6 12 Local SE 21 21 11 21 0 21 5

Level of change in use of external finance over last 5 years
All SME increase no change 20 46 National SE 52 29 Local SE 13 62

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decrease

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Have an enterprises’ application for finance ever been rejected?
All SME yes no 10 90 National SE 28 72 regional SE 2 98 Local SE 20 80

Planned financing of future growth
All SME grants surplus bank loan members leasing equity other 16 49 24 0 5 7 0 National SE 39 29 17 6 5 4 0 Local SE 38 31 13 6 0 0 12

Barriers to developing trading
All SME access to finance access to grants lack of staff lack of premises lack of cash-flow lack of demand the market-place 14 2 20 4 16 32 12 National SE 30 25 13 15 9 4 4 Local SE 0 44 14 14 14 14 0

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APPENDIX – Publicity for Loan Fund

Dedicated flyer to publicise the loan fund circulated with CCDA’s ‘standard’ flyer and with newsletter mail-shots that are sent to a targeted list of over 350 individuals, CSEs, media contacts and support agencies

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Publicity generated in social enterprise-specialist press

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Cambridge CDA Ltd
Alex Wood Hall, Norfolk Street, Cambridge CB1 2LD T: 01223 360977 E: cambridgecda@connectfree.co.uk F: 01223 509040 W: www.colc.co.uk/cambridge/ccda

Registered in England No. 1853517
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