How do social enterprises get funding?

Image -How do social enterprises get funding?

You asked, so I’ll answer – How do social enterprises get funding?

For a social enterprise the ability to obtain funding depends on what legal structure they have. If you set your social enterprise up as a charity, so this could be an unincorporated charity, a charitable company, or a CIO (charitable incorporated organisation), then you’re likely to be eligible for more funding sources than any other legal structure.

The reason for this is that most trust and foundations that give funding recognise that charities are doing something for public benefit, so they are eligible for more funding than other types of legal structures.

The other legal structure that a lot of social enterprises have is as a community interest company (CIC), and with this legal structure depending on whether you are limited by guarantee or limited by shares, it will affect your ability to obtain funding. A limited by guarantee community interest company will be eligible for more funding as it is seen as similar to a charity structure. Whereas, a community interest company limited by share, depending on how you structure the limited by share company, it will affect how many trust and foundations will give it funding. So you may find that if you’re limited by share and you can pay out dividends to individuals, then you won’t be able to apply for funding to some trusts and foundations.

In fact, probably most trust and foundations won’t see you as eligible for funding. Whereas if you restrict dividends so they can only be paid to other asset locked bodies (charities, CICs and community benefit societies) then you are more likely to be eligible.

If you are set up as a limited by guarantee company, then you may be eligible for some funding through more business or commercial structures. It also will depend on whether you’ve got a social purpose or clause within your articles. Because if you do have that, then you may be seen as similar to a community interest company or a charity, and therefore eligible for funding from trusts and foundations.

If you’re limited by share, as in just a standard company that most businesses use, what this will mean is you’ll definitely need to have a clause within your articles around your social purpose, and details around how you use profits or dividends from the company, in order for you to be eligible for funding. What can happen is that some trusts and foundations won’t allow funding to a limited by share company, even if they do have a social purpose clause in their articles, because this can be changed which means there’s no permanent asset lock in place.

This is the opposite of charities and community interest companies because they have to have an asset lock in place, which means that any assets that are left in the charity or CIC if it is closed down can’t be used for any other purpose than what the company was originally set up for. A standard limited by share company is able to change its articles, remove the social purpose clause, and therefore become ineligible for the funding that they’ve got. That’s one of the reasons why many trusts and foundations won’t fund them.

If you set up your social enterprise as a community benefit society or co-op, there are specific sources of funding for these types of legal structures. They’re also eligible for most types of funding from trust and foundations, as well; because similar to charities and community interest companies, community benefit societies will have an asset lock in place and co-operatives tend to have a similar thing in place. With co-operatives the asset lock will have been agreed by the members and included in the co-op’s rules, but there is no legal requirement for a co-op to have this in place. So, if the co-operative is more of a commercially-based co-operative, then they may not be seen as eligible for the funding.

Once you’ve considered the eligibility of your legal structure for funding, it’s a case of then doing a search for what funding sources are available for the types of projects or activities that you deliver, and then submitting applications using the guidelines that the funder provides. In most cases, the success rate for funding applications is around 20%. So for every ten applications you submit, you’re likely to get two that are successful. Depending on how effectively you write bids, it may be higher than this. To be honest, bid writing is a skill and it’s only something that you’ll develop and learn the more applications that you submit. The flip side of this is that obviously applying for funding is very time consuming. There’s a lot involved in putting together applications, and submitting all the information that funders require; as well as then doing the evaluations and project management that they require you to do through the course of the funding that you have from them.

You need to weigh that up against your objectives of actually running a social enterprise; which would normally require you to be trading and selling a product or service, rather than being solely dependent on grant funding. If you planned to be solely dependent on grant funding, then I definitely recommended you set up as some kind of charity structure. Otherwise, you’re less likely to be funded, as I’ve already mentioned.

The other types of funding that many social enterprises are eligible for is some types of start-up grants, either as normal commercial businesses that are available from your local authority, local community foundations, or other business support services within your local area. Alternatively, there is Unltd, which is a foundation that gives grants to social entrepreneurs. If you want to be eligible for this funding, then you need to apply to them before you’ve set up your social enterprise; so before you’ve set up the legal structure.

They also have some programmes once you have set up your legal structure – but they do accept any legal structure (including limited by shares providing you are willing to have a social purpose clause in your articles). Then, there’s also the School for Social Entrepreneurs, which runs a number of training courses and programmes that are free or low cost for social entrepreneurs to attend, once you’ve got an idea and set up your social enterprise. They also provide grants as well. Then, there are obviously trust foundations and other funders that will give money to deliver programmes or projects that meet their specific objectives or criteria that they’re looking to spend money on.

The final thing that I want to say around funding is to talk about people who’ve set up their social enterprise as a sole trader. In this case, you will be eligible for some types of funding, but it will predominantly be business-based funding; so things that perhaps come through the chamber of commerce, your local authority, or your local council, rather than through a lot of trusts and foundations. You’re perhaps looking much more at government funding rather than at trusts and foundations. You’ll also still be eligible for the Unltd and School for Social Entrepreneurs programmes and funding that I mentioned. There are still funding options available as a sole trader, and it’s still a viable legal structure for a social enterprise, but there won’t be as many as you’d get with some of the other types of legal structures.

The best tip I can give you around applying for funding or how to get funding is just to make sure that you’re actually eligible for the funding in the first place. Check that your legal structure is eligible. Check that you’ve got all the supporting documents and information that you need. Check that the activities or services or programmes that you want to run are actually something that they will fund.

Then, my second tip would be make sure you answer the questions. If you don’t answer the questions properly and you decide to write about what you think they want you to, rather than answering those specific questions, you’re very unlikely to be successful.

The third tip that I can give you is in terms of how to be successful with your funding applications, is to really think about the difference that your programme or project is going to make to the people, community, or the environment. Rather than just talking about what you’re going to do (and listing the activities or services), think about the impact that it will have and the difference it will make, how it will change people’s lives or how it will change the environment. Because if you can talk powerfully about the difference that your project will make, then that will strengthen your funding application.