LENDING TO CO-OPERATIVES

& SOCIAL ENTERPRISE

a view from Cambridge CDA: an
exclusive local lender

March 2004
CONTENTS

Executive Summary 3

Introduction 4

History of CCDA loan fund 7

Research into finance issues for local CSEs 10

(Co-operative and Social Enterprise)

Evaluation of CCDA loan fund 15

EEDA project support 18

Lessons for existing and emerging CDFIs to CSEs 19

Conclusions 20

Bibliography 21

Appendices 22
i. Research questionnaire and full findings
ii. Publicity generated over 15 month period to encourage new loan
applications

2
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.

1
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

3
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

3
Social Enterprise – a strategy for success, DTI SEnU 2002, p8&9
4
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

4
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

9
a guide to loans for social enterprise, Bristol Area Community Enterprise network, 2001

5
 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.

6
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 in-
line 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-to-
peer 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

7
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 Co-
operativesUK, 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

10
Finance for Small Business in Deprived Communities, Bank of England, 2000 p7
11
Ibid p.25&29

8
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.

12
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

9
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 All SME
50
National SE
40
30 Local SE
20
10
0
no need

risk averse

other
grants
prefer

restrictions
legal

13

13
SME = Small and Medium sized Enterprises; SE = Social Enterprises

10
 All types of finance sought

45
40
35
30
25 All SME
National SE
20
Local SE
15
10
5
0
venture capital

other
CDFI loan
bank loan

grants
overdraft

share issue

mortgage
asset finance

members

Current external finance being used

40
35
30
25 All SME
20 National SE
15 Local SE
10
5
0
overdraft

mortgage

factoring

other
loan
HP

credit
cards

11
 Reasons given for current use of external finance

35
30
25
All SME
20
National SE
15
10 Local SE
5
0

develop

refurbishment
cash-flow
building

working

other
equipment

trading

capital
costs

Level of change in use of external finance over

last 3 years

70
60
50
increase
40
no change
30
decrease
20
10
0
All SME National SE Local SE

Applications for finance rejected

100
90
80
70
60
yes
50
no
40
30
20
10
0
All SME National SE Local SE

12
 Financing of future growth

60

50
40 All SME
30 National SE
20 Local SE

10
0

other
leasing
grants

bank

members
surplus

equity
loan

Barriers to developing trading

50
45
40
35
30 All SME
25 National SE
20 Local SE
15
10
5
0
access to grants

the market-place
lack of premises

lack of cash-flow
access to finance

lack of demand
lack of staff

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

13
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.

14
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

15
 • 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:

14
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

16
Positive attitudes to banks
Brand strength. Seen as
financially stronger, more robust
and trustworthy
Complex transactions managed
with ease
Local presence
Confidence of local authorities,
trustees
International/export experience
Seen as cheaper than social
economy specialists
Good personal relationships
Preferential rates/low charges
SE attitudes to mainstream banks, as shown in ‘Lend me your fears’, The Guild, 2004
CCDA
Not seen to have great financial
security
Can be lengthy process to secure
loan
No ‘physical’ presence like the
banks
Low awareness of loan service
amongst local authorities
Local experience only
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
17
Negative attitudes to banks
Requirement for matched funding
High deposits sought.
Not designed for needs of
charities
Fair weather friends
Profit making motive
incompatible with social
economy.
Not geared up to deal with
alternative legal structures i.e. co-
operatives
Out of touch with sector needs
High charges
CCDA
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
Seen by many to be central to the
sector in terms of knowledge
Low charges on loan, no charges
for appraisal or set-up
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

15
EEDA Corporate Plan 2002-4, p.4
16
Ibid, p6
17
Ibid p14

18
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

19
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 risk-

averseness 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

20
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

21
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:

22
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

National regional
All SME SE SE Local SE
no need 82 26 60
risk averse 7 21 20
prefer grants 0 16 0
legal restrictions 0 4 20
other 11 33 0

All type of finance sought over life of enterprise (if any)

National regional
All SME SE SE Local SE
overdraft 39 29 25
bank loan 32 29 0
CDFI loan 5 17 25
share issue 2 2 0
venture capital 3 2 8
asset finance 11 13 8
grants 1 2 17
members 0 3 0
mortgage 2 0 17
other 4 3 0

Current external finance used

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

Reasons given for need for finance (if any)

All SME National SE Local SE
building costs 7 32 21
equipment 27 15 21
cash-flow 15 23 11
develop trading 17 9 21
working capital 15 4 0
refurbishment 5 6 21
other 14 12 5

Level of change in use of external finance over last 5 years

All SME National SE Local SE
increase 20 52 13
no change 46 29 62

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decrease 34 18 25

Have an enterprises’ application for finance ever been rejected?

National regional
All SME SE SE Local SE
yes 10 28 2 20
no 90 72 98 80

Planned financing of future growth

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

Barriers to developing trading

All SME National SE Local SE
access to finance 14 30 0
access to grants 2 25 44
lack of staff 20 13 14
lack of premises 4 15 14
lack of cash-flow 16 9 14
lack of demand 32 4 14
the market-place 12 4 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 F: 01223 509040

E: cambridgecda@connectfree.co.uk W: www.colc.co.uk/cambridge/ccda

Registered in England No. 1853517

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