The 2014 Social Enterprise Monitor released in April by Social Enterprise NL (in Dutch) cites the availability of funding – or rather the lack of it – as a key impediment to the growth of social enterprises. It’s a statement reflecting the experiences of social entrepreneurs – so what’s the bank’s take on this? Let me get one thing straight: if this is what social businesses report, the bank would be wrong to deny it. Funding and financing requirements aren’t easy to meet. A bank will always consider whether a business venture is viable, and will ask probing questions about entrepreneurs, their markets, their willingness to pay for products or services, their competitors, and their costs and income.
A bank will always consider whether a business venture is viable
Andius Teijgeler Director Communications and Sustainability
Finance and risks
Of course, the bank will want to know what its money will be used for and how the borrower will repay the loan. And the bank can’t afford too big a risk on repayment: if it earns a 4% margin and one in 50 loans isn’t repaid, it’ll have 2% to cover its costs and turn a profit. Considering that 50% of all start-ups will have come and gone within five years, it’ll perhaps be more understandable why bankers tend to proceed with caution.
And then there’s the capital position of a business – key to banks but typically tricky for social enterprises. More often than not, founders simply lack the funds and need to call on others to help them make a go of it. Crowdsourcing or informal investors are one way to tap into such funding, which is why ABN AMRO has launched Seeds, its crowdfunding platform for start-ups, among a range of other initiatives.
Innovative finance is another way to go – the creation of the social impact bond is one such example. The bank, local authority and company agree on an investment by ABN AMRO’s Social Impact Fund to help fund the business. The business will provide jobs to young people and the local authority will pay depending on the results.
So what does all this mean for my own business?
You may well think: "That all sounds very nice, but what’s in it for me?" You’re an entrepreneur and still need for the bank to lend you money. So it’s back to your basic question: "Can you finance my business?" To help entrepreneurs get started, we’ve created a platform about financing businesses: Verder met financieren (in Dutch only). No guarantee of success, but it might come in handy when preparing for that all-important application.