How Do Social Enterprises Get Funding?

You have a terrific idea that will not only earn money but also make a positive social impact – that’s great news! The world needs more people like you. But there are some hurdles you need to navigate, the main one being funding. 

So, where do you start? Read on for more! 

What Are Social Enterprises?

Social enterprises are cause-driven businesses that are set up to change the world for the better, but unlike charities, they can still earn a profit.

While charities or not-for-profit organisations generally rely on government grants and donations, social enterprises trade in goods or services and have more traditional income streams to generate revenue.

Social enterprises are becoming increasingly popular, and they make a lot of sense. As the world becomes more connected, we become more aware of the need to address social issues and make a positive impact on our society. To be able to follow a passion for social change relies on financial viability. 

Not-for-profit or charity organisations have an important role, but earning a profit will attract more change leaders and investors with a social conscience; it’s a win-win! 

The problem is, where does the funding come from?

Enterprise Structure

Social enterprises do not always comply with the guidelines for some avenues of funding available to charities. One of the factors that may affect your capacity as a change leader to gain funding for your social enterprise is the legal structure of your enterprise. 

How you set up your structure determines what types of funding you may be eligible for. Proprietary limited companies can make a profit, but they won’t be eligible for grants in the same way as a charity. A not-for-profit enterprise, such as a company limited by guarantee, doesn’t have the same capacity to earn a profit. 

It may be best to Set Up A Hybrid Structure. What structure you choose will certainly affect your funding options.

Funding Options

There are a host of funding options available, but it’s a competitive field. So, it’s important to have a very clear business plan. 

While it’s tempting to think your idea is going to change the world for the better, investors will still be looking at the financials. Do your research and map out your markets and planned growth so they can see the potential, just as you would with any business idea. 

But yes, make sure the social benefits are clear and a main focus. Your point of difference is that you have a cause, and it’s that social impact that will appeal to the right investors.

So, who are these investors? 

Yourself, Friends And Family

It may seem obvious but depending on the level of investment required, the first rung on the funding ladder is yourself and your nearest and dearest. If you can’t convince them, then you may be in trouble! 

However, there are often downsides to mixing family or friends and business, so this is often a less appealing method of fund-raising. Self-funding is certainly an option to consider if you can afford it and have faith in your success.

Banks

If your prospects look good on paper (and this is why you need a good business plan) then you may obtain a direct loan from a bank or financial institution. Keep in mind that most banks have certain grants available to social enterprises, some with a particular focus. 

For example, Westpac invests in “social enterprises with a proven model for job creation to support people facing barriers to mainstream employment”. It is certainly worth considering this traditional method of raising funds.

Non-Bank Financial Organisations And Grants

There are many organisations, both here in Australia and globally, that offer grants for specific purposes or causes. Try this government grants finder to help you. 

Organisations, such as sefa (Social Enterprise Funding Australia), work to support purpose-driven organisations, including helping them find funding, either directly or as an intermediary. Social Change Central also does the legwork for you in finding funding from grants and other programs. 

Financial groups such as The Impact Investment Group offer finance for environmental and social impact projects or enterprises.

Crowdfunding

Crowdfunding is exactly what it sounds: raising funds from a crowd. You need to pitch your idea to your audience (a portion of the general public, depending on what platform you set up your campaign on) and they register their support by offering you a promise to invest if you get enough interest. 

There are some dangers – if you raise money from strangers, you are committed to delivering what you promised or you will negatively impact the reputation of your enterprise from the outset. It’s also difficult to have any control over the types of investors. However, they must have been genuinely interested in your idea to invest and that confidence goes a long way. 

It’s a good way to start out and test the waters with your idea. The government offers a guide to setting up a crowdfunding campaign. 

Start-up Accelerators Or Incubators

These types of venture capitalists are usually mentors who want to give back to start-ups to help them in their initial phases of growth. They usually provide some seed capital for a small amount of equity (a bit like Shark Tank) and they share their experience and wisdom. 

It’s important to note that many are just out to partake in the growth of a business venture, not necessarily a social enterprise, but many specialise in a particular set of values. For example, the good incubator helps those with disabilities start up their own business. You need to look carefully at their requirements and values, and also compare what they offer with the ‘payment’.

Don’t Be Deterred!

If you have passion for your idea, don’t be deterred by the first stumbling block in finding funding. It’s not an easy landscape to navigate and it requires persistence. The world needs more people to be brave about doing social good and there’s a growing movement to support change leaders like you. There is increasing global awareness and government support for social enterprises.

Key Takeaways

• Do your homework and create a solid, convincing business plan
• Seek advice about the best structure for your social enterprise
• Decide if you need a small or large pool of initial funds to determine your funding approach
• Research whether you’re eligible for a grant
• Decide if having an accelerator or mentor would be helpful
• Keep looking!

If you need legal expertise in social enterprise structures and funding options, we have the right people to help you. Reach out to our team for a free, no-obligations chat at team@sprintlaw.com.au or on 1800 730 61.

Sarah Voysey

Sarah is a content and copy writer with a background in merchant banking. She has a passion for putting technical language into plain English and is a contributing writer for Sprintlaw.