Pérez Gómez (2007):
INDICADORES DE LAS COMPETENCIAS BÁSICAS EN LAS DISTINTAS ETAPAS
The analysis in this section relates to instances in the last 12 months in which:
• Overdraft limits were exceeded without the authority of the finance provider. • The business failed to keep up with repayments on term loans or leasing and
hire-purchase agreements.
These two headings are joined under the term ‘financial delinquency’. It has been argued in this report that, amongst other reasons, social enterprises may appear riskier to finance providers because of a misalignment of objectives between the two parties. This misalignment raises the potential of a moral hazard problem whereby social enterprises might place their social objectives above generating sufficient cash-flows to meet loan repayments. Combined with the potential loss of reputation faced by finance providers which enforce loan agreements with social enterprises, this raises the potential of strategic default by social enterprises on their loan contracts. Alternatively, irregular and undiversified cash flows from grant sources may increase the difficulties faced by social enterprise in keeping up with regular repayments on loan agreements. If either reason for default is the case it might be expected that rates of financial delinquency are higher amongst social enterprises compared to mainstream businesses. However, offsetting these arguments there is some empirical evidence which suggests that social enterprises are less risky than mainstream SMEs, possibly due to the value-added advice provided by specialist lenders (Aigner et al, 2002).
Tables A6.9-A6.11 present analysis relating to unauthorized borrowing on overdrafts, and failure to keep up with repayments on term loans and leasing and hire-purchase agreements respectively. This analysis shows that:
• Social enterprises are significantly less likely to exceed their agreed overdraft limit than mainstream businesses (14.0% versus 25.9% of mainstream businesses respectively).
• Similarly low percentages of social enterprises and mainstream businesses missed term loan repayments (3.0% and 3.6% respectively).
• Similarly low percentages of social enterprises and mainstream businesses missed repayments on leasing and hire-purchase agreements (3.0% and 3.6% respectively).
This analysis does not suggest that social enterprises are more likely to renege on loan agreements than mainstream businesses due to either strategic default or cash-flow problems. If anything, social enterprises appear less likely to behave in a financially delinquent manner.
Figure 6.6.1: Percentage of businesses which have exceeded their overdraft limit in the last 12 months 14.0% 13.5% 12.4% 15.6% 14.2% 25.9% 26.2% 25.9% 24.1% 20.8% 0% 5% 10% 15% 20% 25% 30% All 0 1--9 10--49 50--249 Social enterprises For profit enterprises
Bases:
Social enterprises with overdrafts All; n=3,942
0; n=127 1-9; n=1,772 10-49; n=1,549 50-249; n=544 For Profit Enterprises All; n=1,901,825 0; n=1,000,996 1-9; n=735,824 10-49; n=147,776 50-249; n=17,230
Figure 6.6.2: Percentage of businesses which have missed term loan repayments in the last 12 months 3.0% 3.8% 3.2% 1.7% 3.6% 0.9% 3.6% 1.2% 6.8% 0% 1% 2% 3% 4% 5% 6% 7% 8% All 0 1--9 10--49 50--249 Social enterprises For profit enterprises
Bases:
Social enterprises with overdrafts All; n=1,968
0; n=No obs. 1-9; n=562 10-49; n=977 50-249; n=412 For Profit Enterprises All; n=756,755 0; n=310,494 1-9; n=362,217 10-49; n=73,272 50-249; n=10,772
Figure 6.6.3: Percentage of businesses which have missed leasing and hire-purchase agreement repayments in the last 12 months
1.1% 0.4% 1.6% 1.3% 1.5% 1.2% 1.9% 1.0% 0.6% 0% 1% 2% All 0 1--9 10--49 50--249 Social enterprises For profit enterprises
Bases:
Social enterprises with overdrafts All; n=4,128
0; n=No obs. 1-9; n=1,552 10-49; n=1,991 50-249; n=539 For Profit Enterprises All; n=669,261 0; n=232,867 1-9; n=322,660 10-49; n=100,189 50-249; n=13,545
Summary
The argument that social enterprises are poorer served than mainstream businesses by a financial services sector which does not fully understand them is not supported by the analysis of financial relationships presented in this chapter. Social enterprises have less concentrated financial relationships than mainstream businesses and they make significant use of specialist institutions which are able to cater for their specific needs. Social enterprises have shorter banking relationships but, on the evidence presented in Chapter Five, this does not seem to significantly affect their access to finance. Importantly, there does not appear to be a systemic lack of understanding of social enterprises amongst finance providers. In fact, in key aspects of the financial relationship: availability of finance; bank charges, competence of banking staff; and understanding of the business, social enterprises appear to be more satisfied than mainstream businesses. Social enterprises are as capable as mainstream businesses of shopping around for financial products – although there is a high degree of inertia on both sides. Whereas it might have been expected that rates of financial delinquency would be higher amongst social enterprises, due to either strategic defaults or irregular cash flows, the evidence suggests the contrary is true.
Chapter Six: summary of key significant findings Market shares of the main finance providers:
• The Big Four banks are the main finance providers to 69.2% of social enterprises which is a significantly lower market share than amongst mainstream businesses (77.4%).
• A significantly higher percentage of social enterprises are banked with the Co-operative bank compared with mainstream businesses (6.9%; the exact figure for mainstream businesses cannot be reported). • Amongst specialist institutions, 3.3% of social enterprises use the Charities Aid Foundation as their main
finance provider; social banks (Unity Trust Bank and Triodos) have a collective 3.5% share of the social enterprise market.
Number of finance providers:
• In aggregate, the average number of finance providers is higher amongst social enterprises than mainstream businesses (1.6 versus 1.5 finance providers).
• However, across size-bands, social enterprises have significantly fewer finance providers than mainstream businesses in the 1-9 size-band (1.5 versus 1.6) and in the 10-49 size-band (1.7 versus 1.8).
• Also, a lower percentage of social enterprises have only one finance provider compared to mainstream businesses (50.5% versus 59.1%).
• Again, this difference reflects variations in firm size-distributions; comparisons of the distribution of the number of finance providers within size-bands show that these distributions are very similar.
• Notably, however, in the 50-249 size-band social enterprises are significantly less likely to have three finance providers than mainstream businesses (10.5% versus 21.2%).
Relationship lengths:
• The average length of financial relationships amongst social enterprises is 13.1 years. This is significantly shorter than amongst mainstream businesses (14.7 years).
• Relationships are about 70% of the age of the business amongst social enterprises and a significantly higher 120% of business age amongst mainstream businesses.
Levels of satisfaction with the main finance provider:
• A significantly lower percentage of social enterprises are very dissatisfied with the availability of finance compare to mainstream businesses (1.5% versus 4.5%).
• A significantly higher percentage of social enterprises are very satisfied with bank charges (34.5% versus 17.7% of mainstream businesses).
• Also a significantly lower percentage of social enterprises are very dissatisfied with bank charges (5.3% versus 11.6% of mainstream businesses).
• Regarding satisfaction with the competence of banking staff, significantly fewer social enterprises are very dissatisfied with this aspect of service compared to mainstream businesses (1.5% versus 4.1%).
• In the key area of levels of understanding of the business, a significantly higher percentage of social enterprises are very satisfied with this aspect of service compared to mainstream businesses (39.1% versus 30.6%).
Financial delinquency:
• Social enterprises are significantly less likely to exceed their agreed overdraft limit than mainstream businesses (14.0% versus 25.9% of businesses respectively).