Financing social enterprises and the demand for social investment

Social investors are supplying increasing amounts of finance to enterprises combining social and commercial objectives although these social enterprises are still more likely to seek bank finance, suggesting that social investors should focus on market gaps which are more likely to occur for smaller, younger social enterprises that lack track record and collateral. Social enterprises offer innovative ways of combining social and commercial objectives and are only slightly less likely to seek repayable finance than other SMEs, with younger social enterprises being more growth oriented and also more discouraged from borrowing. Where social enterprise borrowing takes place, it is almost three times more likely to be from commercial banks, rather than specialist social investment lenders that are more likely to invest without requiring collateral. Social investment lenders should therefore focus their offer on finance gaps left by banks, notably in earlier stage social enterprise development, rather than compete for existing commercial bank market share.

This is the peer reviewed version of the following article: Lyon F, Owen R. Financing social enterprises and the demand for social investment. Strategic Change. 2019;28:47–57, which has been published in final form at https://doi.org/10.1002/jsc.2245 . This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions

Volume 28, Issue 1: Special Issue: Blockchain and Other Innovations in Entrepreneurial Finance: Implications for Future Policy