TABLA 26: INDICADORES DE LAS COMPETENCIAS BÁSICAS EN EL 2º CICLO DE EDUCACIÓN INFANTIL

In some aspects the analysis presented in this report supports previous suppositions and empirical evidence about the finances of social enterprises. Social enterprises are highly dependent on grant finance and use less commercial finance than mainstream businesses. This raises the issue of whether social enterprises are being well supplied with commercial finance. Potentially, social enterprises could appear riskier to mainstream finance providers because of: a misalignment between the mission of social enterprises and the financial objectives of mainstream finance providers leading to moral hazard issues; a lack of understanding of social enterprises amongst mainstream finance providers; or a lack of financial acumen amongst social enterprises. These issues could raise the barriers to finance amongst social enterprises and lead to higher rejection rates, higher borrowing costs and higher collateral requirements. In this context, grant finance may be a more attractive, or indeed the only, funding option.

However, there is little evidence found in this report to suggest that social enterprises are either riskier or less well understood by finance providers. In this context the report finds that social enterprises are less financially delinquent and feel generally more satisfied with their finance providers than mainstream businesses. Accordingly, in terms of their access to finance, social enterprises experience similar rejection rates to, and pay loan margins on a par with, mainstream businesses. The analysis therefore suggests that reliance on grant funding is more likely to reflect the preferences of

financial managers in social enterprises (e.g., debt aversion) rather than constraints in the supply of commercial finance.

This does not imply that there is a total absence of finance issues in the social enterprise sector, some of which may stem from the supply-side. In this regard, the report finds that social enterprises are more likely to report critical problems with finance and financial advice is largely ineffective at ameliorating these problems compared with mainstream businesses. Also, amongst smaller social enterprises, there is a higher perception that they will be rejected by finance providers, as reflected in a higher incidence of financial discouragement, compared to mainstream businesses. A lack of good financial advice, and/or financial discouragement, may contribute to a greater reliance on grant finance.

In relation to financial discouragement the implication is that an improvement in communication between finance providers and the social enterprise sector is required to deal with the (unwarranted) perception that banks are unwilling to lend to this sector. This is not an easy task since discouraged borrowers, by definition, may have little or no contact with finance providers. However, social enterprise representative groups, public support organizations and specialist lenders may help to broker this process by highlighting successful instances of borrowing by social enterprises and by bringing attention to the wide range of available finances. For example, the wide take-up of asset finance in the sector (noted in this report) could be used to highlight the alternatives to traditional debt finance where an absence of collateral would otherwise be an obstacle.

The suggestion also arises that more work is needed to improve the effectiveness of financial advice available to social enterprises (particularly to those with serious financial problems). In terms of public support, whilst Business Links are required to consider the needs of social enterprises when writing their business plans, and there are examples of good practice in this regard (see DTI, 2002), it is possible that these examples are not yet widespread enough. Also social enterprises and their advisers may be insufficiently aware of the public financial support which is available to social enterprises. Once again, specialist lenders may have a crucial role in filling these knowledge gaps, although this would require an increase in the take-up of specialist advice from its current low level

(less than 1%). In this regard mainstream advisers (e.g., accountants and bank managers) could be encouraged to work more in conjunction with specialists, such as social banks and CDFIs, either by tapping their expertise or, in problematic cases, by forwarding the client for direct consultation with a specialist. However, it is out-with the scope of this report to develop a strategy for improving the quality of financial advice available to social enterprises.

The report finds strong evidence that an increase in the use of commercial finance reduces grant dependence. This supports current policies designed to increase the amount of funding available to CDFIs for on-lending to social enterprises. Also support and advice from financial advisers and various government initiatives appears to be effective in assisting the transition away from grant dependence (if not in ameliorating serious financial problems); future research could seek to identify which specific government initiatives are helpful in this regard. However, there is no evidence that a reduction in grant funding would increase the use of commercial finance – indeed reducing the availability of grant funding is not part of the current policy framework nor, on this evidence, should it be in the future.

More importantly, in terms of the current policy framework to expand the social enterprise sector, there is no evidence that an increase in the use of commercial finance leads to enhanced sales growth in the sector. In fact, to the contrary, greater use of commercial finance is associated with lower sales growth. It is possible that this result is biased due to the restriction of the analysis of commercial finance to debt (due to data constraints) which is less usually associated with high growth businesses. Also, a more accurate picture of the development of the sector would require analysis of a wider range of performance measures (the restriction of the analysis to sales growth is again due to the available data). Future work may usefully look at the roles of both debt and equity finance in relation to a wider range of performance measures.

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