£78bn sector failed by lack of long-term finance – new Social Enterprise UK research

The social enterprise sector in the UK is “surviving not thriving” and being held back by systemic challenges, including a lack of access to appropriate finance, according to Social Enterprise UK (SEUK).

The State of Social Enterprise Survey is published every two years by membership body SEUK. In this year’s report, researchers found almost half of social enterprises had trouble accessing enough suitable finance, with over a third saying the available forms of finance are unsuitable for their business and a third lacking the skills to obtain external finance or investment.

Dean Hochlaf, head of policy at SEUK, said: “We appreciate the wider economic conditions are affecting the entire country, but social enterprises are in a little bit of a more challenging space because they have social missions at the heart of what they do. If they’re trying to address that mission, run a business, pay their workers well and create good working conditions, it makes things that bit more difficult. 

“If you tell those businesses there’s finance available, but it’s going to cost you this, or you’re going to have to pay it back in a short time frame before you start generating profits, it just puts on additional pressure. Many social enterprises need patient, long-term capital. That means sometimes they need a little bit more time to get established, but when they do they prove to be very resilient businesses and create great employment opportunities.”

Research published by social impact investor Big Society Capital found the UK social investment market grew to £9.4bn in 2022. Seb Elsworth, chief executive of Access – the Foundation for Social Investment, said: “The report underlines the need for more of the kind of finance that we know social enterprises need in the shape of smaller-scale long-term patient finance that can be used for working capital or for investment in new services and products. Blended finance is central to this, and the work delivered by our partners and supported by Dormant Assets has enabled social investment to become more efficient, equitable and more tailored to the needs of charities and social enterprises.

“There is more to do – the Community Enterprise Growth Plan and the next injection of Dormant Assets will catalyse this further, particularly in terms of targeting more resource to the places and communities that are struggling with long-term economic decline and most at risk from the cost-of-living crisis. This must be accompanied by renewed efforts to secure additional sources of funding and investment from the public, private and philanthropic sectors to meet this challenge in full.”

The report says the UK’s 131,000 social enterprises generated more than £1.2bn in profits, of which £1bn was reinvested into their social and environmental missions. By comparison, FTSE 100 companies were on track to spend a record amount on share buy-backs, alongside nearly half of expected net-profit of £170bn going to paying dividends.

But while social enterprises overall reported strong turnover growth, the proportion of those expecting turnover to decrease is double the pre-pandemic levels. 70% of social enterprises made a profit or broke even last year, down 4% from the 2021 figures. 

Hochlaf said: “We feel that with a bit of additional support, tackling those barriers to finance, stimulating demand, gaining recognition in government, the private sector and within wider communities, we can help social enterprises grow at a much faster pace. We want to ensure social enterprises become a much more permanent and more visible feature of the British business landscape, because they need to be if we want to get our economy back on track.”

A £270m “lifeline” for the UK’s most deprived areas

Of the £1bn social enterprises reinvested across the UK, £270m was reinvested in the UK’s most deprived areas. Hochlaf described this figure as a “massive lifeline” for underserved communities. However, the social enterprises operating in the most deprived areas reported seeing a higher drop in turnover, fewer public sector contracts and greater contraction in jobs. 

Hochlaf said: “Not only do social enterprises reinvesting in these areas alleviate certain social pressures, it also helps spread wealth, stimulate demand and create conditions for long-term prosperity. We know social enterprises are tackling systemic issues in the most deprived areas and if we can allow more to develop that will allow these communities to really take control over their own economic future.” 

The report also found the proportion of social enterprises operating in the most deprived places has fallen over the last decade. The report found 22% of social enterprises are based in the most deprived areas, a similar proportion as in 2021 and 2019, but a significant drop from 38% in 2013.

Although this could indicate social enterprises in these areas struggling to survive the pandemic and cost of living crisis, Hochlaf said it is also a sign that different communities are starting to see social enterprise as a way to address specific problems. Despite the drop, the proportion of social enterprises operating in the most deprived areas of England is still a larger proportion than an estimated 14% of VAT and/or PAYE businesses.

In his foreword to the report, SEUK chair Lord Adebowale said: “Given the sector’s impact despite present challenges, its potential in a more supportive ecosystem could be transformative. ‘Business as usual’ isn’t working and this mission-led model must become the new normal. As we look ahead to a general election year, social enterprise solutions must be front and centre of a British economy that drives fair growth for all.”

Top photo: Beyond Food Foundation, featured in the State of Social Enterprise report (credit: Social Enterprise UK).