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									    Report




                                  Social enterprises and the
                                  recession

                                  Market Research for Business Link
                                  in London



                                  Rocket Science UK Ltd
                                  12th June 2009




Rocket Science UK Ltd
70 Cowcross Street
London
EC1M 6EJ

T: 020 7253 6289
E: mark.morrin@rocketsciencelab.co.uk
W: www.rocketsciencelab.co.uk
                               Social enterprises and the recession: Business Link in London




Contents




1. Introduction                                                                     1


2. Survey headlines                                                                 4


3. Interviews with lenders                                                        33


4. Conclusions                                                                    34




© 2008 Rocket Science UK Ltd
www.rocketsciencelab.co.uk
1. Introduction

Business Link in London (BLIL) commissioned Rocket Science UK Ltd to undertake a
survey about the impact of the recession on social enterprises. This report represents
the key findings of this research which will inform the focus of a BLIL PR launch in
June 2009.

1.1 Our method and approach
Our approach, including an on-line questionnaire and telephone survey, was based on
the understanding that the work needed to be delivered within a short time frame,
using the most efficient and cost effective means of producing quick headline
information. The research needed to be sufficiently rigorous in order to have
credibility and stand public scrutiny, although achieving statistical significance was not
a primary objective due to some of the methodological problems identified below,
including:

   •   Definitions of social enterprise and the implications in estimating the size of the
       sector in London
   •   Whether the number and type of available contacts (email or postal addresses)
       will enable a representative response, and
   •   The mixed methodologies of e-survey, postal survey and telephone survey that
       may be required to achieve a representative response
   •   The timeframes for completion of the work, and
   •   Incentives for Social Enterprises to respond.

1.1.1 Defining the sector

With the considerable focus and publicity over the last ten years or so, the term ‘social
enterprise’ is increasingly recognised, with some organisations describing themselves
in these terms. However, others see themselves first and foremost as other types of
organisation, often part of long-standing sectors or movements which pre-date the
term ‘social enterprise’, such as housing associations, charities and co-operatives.

Broadly speaking, social enterprises are only defined by their goals and how they
reinvest their profits. This allows for a highly diverse range of enterprises
encompassing differing legal forms, working in different sectors with differing social
(including environmental) objectives and of different sizes with a range of geographic
markets. These factors have contributed to the current situation where:

   •   Some organisations that are social enterprises do not identify themselves as
       such;
   •   Some organisations that do not fit accepted definitions describe themselves as
       social enterprises. i

On advice from Business Link London and Social Enterprise London (SEL) we have not
imposed a definition for potential respondents. The on-line questionnaire was emailed
to organisations identified by BLIL and SEL as social enterprises. As part of the follow


© 2008 Rocket Science UK Ltd
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up telephone survey – to boost response rates – we included an introductory filter
question, ‘Are you a social enterprise?’ Those organisations which declared themselves
social enterprises where included in the sample for interview.
Subsequent survey questions aimed to assess:

   •   Whether organisations are Incorporated (Company Limited by Guarantee,
       Community Interest Company or Industrial & provident Society), and
   •   The proportion of income generated through trading.

1.1.2 Questionnaire design

We designed a short questionnaire to explore the aims of this research.

   •   Sources of income – earned, government contract, grant, charitable giving,
       loan/credit
   •   Positive and negative aspects of the impacts of the recession to date and in the
       future
          o on their organisations
          o their services (type and demand)
          o their client groups (needs)
          o their partners/competitors.
   •   Extent to which the terms and conditions of existing finance and access to
       additional finance have changed e.g. overdrafts being withdrawn, loan terms
       being renegotiated, finance offers being withdrawn, debtors paying more
       slowly, greater collateral required on loans, etc.
   •   Quality, quantity and nature of the requests for finance being received by
       specialist SE lenders, e.g. rise in demand for working capital.
   •   Non-financial support requirements, e.g. marketing, HR (possibly related to
       staff restructuring), management skills, networking, etc.
   •   Their preferred methods of receiving support, e.g. one to one, email/web,
       workshop, etc.
   •   Their future growth aspirations over the next 3 years – shrink, same, grow
       modestly/substantially
   •   Impact of macro-economy announcements on their ability to operate – e.g.
       reductions in base lending rates, VAT reduction, SME package, etc

The questionnaire was formatted using QuestionPro Software and administrated by
email in three repeat waves. The questionnaire was subsequently re-phrased for the
purpose of telephone interviews and responses were entered on-line by interviewers.

1.1.3 Responses

A total of 131 completed responses from social enterprises were achieved. 77 (59%)
were achieved through telephone interviews, 24 (18%) from online surveys using
Social Enterprise London member data base and 30 from BLIL’s client database
(23%).




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1.1.3 Qualitative research with lenders

In addition we interviewed a number of lenders and CDFIs to explore the issues
specific to lending and credit. This has also enabled us to test the findings of the
survey.




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2. Survey findings

2.1 What kind of organisation are you?
Headline finding: 39% of surveyed organisations are Company’s
limited by guarantee.




                                                               No. of organisations   Percentage
          Company limited by guarantee
                                                                                51       38.90%
          Other (please state here)
                                                                                 37      28.24%
          Charity - Trading Arm
                                                                                 26      19.85%
          Community Interest Company & Company Ltd by
          Guarantee                                                              10       7.63%
          Community Interest Company & Company Ltd by Shares                      7       5.34%
          Industrial and provident society                                        0       0.00%



Selected others:

   •   Sole Trader
   •   Credit Union
   •   Registered charity




© 2008 Rocket Science UK Ltd
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2.2 What proportion of your income is generated through
trading activity?
Headline finding: The most common pattern is for organisations to
generate either more than 75% or less than 25% of their income
through trading activity.




                                         No. of
                                         organisations      Percentage
                    Less than 25%                        51    39.23%
                    Between 25 and 50%                   22    16.92%
                    Between 50 and 75%                   13      9.99%
                    More than 75%                        44    33.85%




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2.3 Which sources of your income have been most affected
by the recession? (1=High impact; 5=No impact)
Headline finding: In general there has been a very low impact on
income sources. Sales was the source most impacted. But its score of
3.20 suggests that even sales have only received a small impact.




                                                                   Score
                Sales - services or products                            3.2
                Government grants                                      3.78
                Donations from charities and trusts                    3.88
                Government contracts                                   4.02
                Loans from mainstream banks                            4.22
                Credit from mainstream banks                           4.27
                Loans from specialist social enterprise lenders        4.47
                Credit from mainstream social enterprise lenders       4.55




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Sales – services or products


                                                 No. of
                                                 organisations        Percentage
                                 1 - High
                                 impact                          29      22.31%
                                 2                               25      19.23%
                                 3                               16      12.31%
                                 4                               11       8.46%
                                 5 - No impact                   49      37.69%




Government grants


                                                 No. of
                                                 organisations        Percentage
                                 1 - High
                                 impact                          23      18.40%
                                 2                               10          8%
                                 3                               10          8%
                                 4                               10          8%
                                 5 - No impact                   72      57.60%




Donations from Charities and Trusts

                                                 No. of
                                                 organisations        Percentage
                                     1 - High
                                     impact                      22      17.89%
                                     2                           12       9.76%
                                     3                            4       3.25%
                                     4                            6       4.88%
                                     5 - No
                                     impact                      79      64.23%




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Government Contracts


                                               No. of
                                               organisations         Percentages
                               1 - High
                               impact                          14        11.11%
                               2                               11         8.73%
                               3                               12         9.52%
                               4                               11         8.73%
                               5 - No
                               impact                          78        61.90%




Loans from Mainstream banks


                                               No. of
                                               organisations         Percentage
                               1 - High
                               impact                           15       12.29%
                               2                                 5        4.10%
                               3                                 9        7.38%
                               4                                 2        1.64%
                               5 - No impact                   91        74.59%




Credit from Mainstream banks



                                               No. of
                                               organisations         Percentage
                               1 - High
                               impact                           12        9.92%
                               2                                 8        6.61%
                               3                                 7        5.78%
                               4                                 2        1.65%
                               5 - No impact                   92        76.03%




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Loans from specialist social enterprise lenders


                                                          No. of organisations Percentage
                                        1 - High
                                        impact                                 9       7.44%
                                        2                                      4       3.31%
                                        3                                      7       5.78%
                                        4                                      2       1.65%
                                        5 - No impact                         99      81.82%




Credit from mainstream social enterprise lenders



                                                        No. of
                                                        organisations       Percentages
                                    1 - High
                                    impact                              7        5.88%
                                    2                                   4        3.36%
                                    3                                   5        4.20%
                                    4                                   3        2.52%
                                    5 - No impact                  100          84.03%




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2.4 Have the terms and conditions of your financing
arrangements with mainstream banks changed?
Headline finding: The vast majority of organisations reported no
change in conditions. For all categories at least 82% of organisations
reported no change




                                                 No. of organisations   Percentage
New loan decisions are taking longer       Yes                     21      18.26%
                                           No                     94       81.74%
Loan sizes being reduced                   Yes                     20      17.70%
                                           No                     93       82.30%
New loan offers being withdrawn            Yes                     17      15.45%
                                           No                     93       84.54%
Existing loan terms being renegotiated     Yes                     14      12.50%
                                           No                     98       87.50%
Greater collateral required on new loans   Yes                     20      17.86%
                                           No                     92       82.14%
Existing overdrafts being reduced          Yes                     12      10.81%
                                           No                     99       89.19%
Existing overdrafts being withdrawn        Yes                     10       9.01%
                                           No                    101       90.99%




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                                                           No. of organisationsPercentage
                                                     Yes                     9    16.07%
                                                     No                     47    83.93%




Selected others:

   •   Difficult to get increased overdraft
   •   I have been unable to pay any bills or my rent for 2 months.
   •   not allowed overdrafts loans etc from banks
   •   Reduced interest rates impact on interest income




© 2008 Rocket Science UK Ltd
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2.5 Are there any positive impacts of the recession that you
have experienced in your dealings with mainstream banks?
Headline finding: 87% of organisations reported no positive impacts




                                 No. of organisations Percentage
                         Yes                       16    12.60%
                         No                       111    87.40%


Selected answers from those that said yes:

   •   I think they are more interested in new business.
   •   Our main account bank offered unsolicited support and advice for the recession
       and credit crunch and their affects on business income.
   •   They are more interested in getting your business
   •   Holiday period for payments after 6 months of new business opening
   •   Giving a lot more free business banking, friendlier and more competitive.
   •   Offering more deals and greater transparency and openness.
   •   felt that the banks were showing a bit more leniency towards us
   •   Seem to be more flexible in transferring an old account and cancelling the
       account fees




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2.6 Have you noticed a change in the practices of specialist
Social Enterprise lenders?
Headline finding: A minimum of 82% of organisations reported no
change in practices across all categories




                                                 No. of organisations Percentage
New loan decisions are taking longer       Yes                     19       17.76%
                                           No                      88       82.24%
Loan sizes being reduced                   Yes                     14         13.86
                                           No                      87       86.14%
New loan offers being withdrawn            Yes                     10        9.90%
                                           No                      91       90.10%
Existing loan terms being renegotiated     Yes                      9            9%
                                           No                      91          91%
Greater collateral required on new loans   Yes                     12       11.54%
                                           No                      92       88.46%
Existing overdrafts being reduced          Yes                      8        7.69%
                                           No                      96       92.31%
Existing overdrafts being withdrawn        Yes                      7        6.86%
                                           No                      95       93.14%




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                                     No. of organisationsPercentage
                               Yes                    12    22.64%
                               No                     41    77.36%


Selected answers from those that said yes:

   •   Apparently, the loaners prefer to keep their staff and reduced grants and loan
       sizes!!!!!! this is absurd. Who are they trying to help here????
   •   Social Enterprise lenders are not getting the funding from government so they
       cannot pass onto the organisations
   •   More of a pro-activeness and preparedness to offer support, so all in all there
       has been a positive impact and these questions assume a negative impact.
   •   More willing to give advice-related activities.
   •   More proactive in London than in Wiltshire.
   •   More marketing received than previously




© 2008 Rocket Science UK Ltd
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2.7 Are there any positive impacts of the recession that you
have experienced in your dealings with specialist Social
Enterprise lenders?
Headline finding: 90% of organisations reported no positive impacts




                                  No. of
                                  organisations       Percentage
                           Yes                     12    10.26%
                           No                     105    89.74%

Selected answers from those that said yes:

   •   More of a pro-activeness and preparedness to offer support, so all in all there
       has been a positive impact and these questions assume a negative impact.
   •   Although greater caution, more willing to give advice-related activities.
   •   More information being made proactively available, hence greater effort to
       improve communication.
   •   Again, more business-friendly especially towards entrepreneurship and better
       perks.
   •   More contact, more pro-activity which is very helpful for a one-man business.
   •   As an organization dealing with the young, it seems that it is easier to get help.




© 2008 Rocket Science UK Ltd
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2.8 Are debtors and funders paying more slowly?
Headline finding: 39% of funders are paying more slowly while 54% of
Debtors are paying more slowly.




                                     No. of organisations Percentage
                     Debtors   Yes                     67    53.60%
                               No                      58    46.40%
                     Funders   Yes                     46    38.66%
                               No                      73    61.34%




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2.10 Has the recession affected the demand for your
services and products?
Headline finding: There was no consensus on this question.




                                     No. of organisationsPercentage
                       More Demand                    45    34.09%
                       Less Demand                    45    34.09%
                       No change                      42    31.82%




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2.11 How has the recession affected how you do business?
Headline finding: Only for ‘Your ability to meet the needs of your
paying customers’ did the surveyed organisations report a marginally
positive effect. Every other category reported slightly negative
changes.

Your ability to meet the needs of your paying customers


                                                                    No. of
                                                                    organisations    Percentage
                                                  Significant
                                                  positive change               8          6.25%
                                                  Small positive
                                                  change                       20       15.62%
                                                  No change                   75        58.59%
                                                  Small negative
                                                  change                       17       13.28%
                                                  Significant
                                                  negative
                                                  change                        8          6.25%




Your ability to meet the needs of your funders and strategic partners


                                                              No. of
                                                              organisations   Percentage
                                          Significant
                                          positive change                 3         2.40%
                                          Small positive
                                          change                         11          8.80%
                                          No change                     84          67.20%
                                          Small negative
                                          change                         22         17.60%
                                          Significant
                                          negative change                 5            4%




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Your ability to meet your social aims and objectives



                                                            No. of
                                                            organisations   Percentage
                                           Significant
                                           positive
                                           change                       6       4.58%
                                           Small positive
                                           change                      21      16.03%
                                           No change                  60       45.80%
                                           Small negative
                                           change                      29      22.14%
                                           Significant
                                           negative
                                           change                      15      11.45%




Your ability to network and create new business opportunities


                                                            No. of
                                                            organisations   Percentage
                                             Significant
                                             positive
                                             change                     8       6.15%
                                             Small
                                             positive
                                             change                    31      23.85%
                                             No change                47       36.15%
                                             Small
                                             negative
                                             change                    28      21.54%
                                             Significant
                                             negative
                                             change                    16      12.31%




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Your ability to develop new services and products



                                                            No. of
                                                            organisations   Percentage
                                           Significant
                                           positive
                                           change                      14      10.69%
                                           Small positive
                                           change                      18      13.74%
                                           No change                  53       40.46%
                                           Small
                                           negative
                                           change                      25      19.08%
                                           Significant
                                           negative
                                           change                      21      16.03%




Your ability to promote and market your business


                                                            No. of
                                                            organisations   Percentage
                                          Significant
                                          positive
                                          change                        9       6.87%
                                          Small positive
                                          change                       23      17.56%
                                          No change                   58       44.27%
                                          Small negative
                                          change                       24      18.32%
                                          Significant
                                          negative
                                          change                       17      12.98%




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Your ability to invest in staff training and development



                                                             No. of
                                                             organisations   Percentage
                                           Significant
                                           positive change               6       4.65%
                                           Small positive
                                           change                       12       9.30%
                                           No change                   61       47.29%
                                           Small negative
                                           change                       32      24.81%
                                           Significant
                                           negative change              18      13.95%




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2.12 In responding to the recession have you needed to or
do you anticipate having to:
Headline finding: Most organisations reported themselves as unlikely
to make any significant changes to their operation.

44% of organisations said it likely they would ‘Upskill existing staff’

Change the nature of your business



                                                                                 No. of
                                                                                 organisations   Percentage
                                             We have already done this                      16      12.31%
                                             It is likely that we will need to
                                             do this                                        38         29.23%
                                             It is unlikely that we will need
                                             to do this                                     76         58.46%




Reposition your business in the market



                                                                        No. of
                                                                        organisations     Percentage
                                        We have already done
                                        this                                         17      13.28%
                                        It is likely that we will
                                        need to do this                              52      40.62%
                                        It is unlikely that we will
                                        need to do this                             59       46.09%




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Restructure your organisation



                                                             No. of
                                                             organisations   Percentage
                                 We have already
                                 done this                              23      17.97%
                                 It is likely that we will
                                 need to do this                        43      33.59%
                                 It is unlikely that we
                                 will need to do this                   62      48.44%




Take on additional staff




                                                             No. of
                                                             organisations   Percentage
                                We have already
                                done this                               14      10.94%
                                It is likely that we will
                                need to do this                         37      28.91%
                                It is unlikely that we
                                will need to do this                    77      60.16%




Upskill existing staff



                                                             No. of
                                                             organisations   Percentage
                                 We have already
                                 done this                              26      20.31%
                                 It is likely that we will
                                 need to do this                        56      43.75%
                                 It is unlikely that we
                                 will need to do this                   46      35.94%




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Make staff redundant



                                                           No. of
                                                           organisations   Percentage
                               We have already
                               done this                              10       7.81%
                               It is likely that we will
                               need to do this                        14      10.94%
                               It is unlikely that we
                               will need to do this                 104       81.25%




Downsize your operation



                                                           No. of
                                                           organisations   Percentage
                               We have already
                               done this                              13      10.16%
                               It is likely that we will
                               need to do this                        19      14.84%
                               It is unlikely that we
                               will need to do this                  96          75%




Close down your operation




                                                           No. of
                                                           organisations   Percentage
                                 We have already
                                 done this                             1       0.78%
                                 It is likely that we
                                 will need to do this                 10       7.80%
                                 It is unlikely that
                                 we will need to do
                                 this                               117       91.41%




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2.13 Has the recession affected your aspiration for business
growth, in terms of turnover and staffing, over the next 3
years?
Headline finding: 72% of organisations are planning for modest or
substantial growth in turnover. 57% foresaw modest or substantial
growth in staff numbers with only 11% expecting their business to
contract.

Turnover




                                                                     No. of
                                                                     organisations   Percentage
                                              Our business will
                                              contract                          11         8.40%
                                              We are planning for
                                              modest growth                    67       51.15%
                                              We are planning for
                                              substantial growth                27      20.61%
                                              We expect our
                                              organisation to stay
                                              the same                          26      19.85%




Number of staff



                                                             No. of
                                                             organisations    Percentage
                                       Our business will
                                       contract                          14      11.02%
                                       We are planning
                                       for modest growth                53       41.73%
                                       We are planning
                                       for substantial
                                       growth                            20      15.75%
                                       We expect our
                                       organisation to
                                       stay the same                     40      31.50%




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2.14 Does the recession present any specific
business opportunities to your organisation?

Headline findings: Half of the organisations see business opportunities
from the recession, the other half do not.




                                       No. of               Percentage
                                       organisations
                           Yes                         66                50%
                                                                         50%
                           No                          66


Selected answers from those that said yes:

   •   Ability to lend where banks won't
   •   Government funded training to upskill staff to become recession proof in the job
       market
   •   increased focus on worklessness plays to one of our core offerings
   •   Increase in referrals from JCP
   •   There is greater need for our service and we can deliver it much cheaper with
       our volunteers than other statutory organisations.
   •   We advise social enterprises and charities on their business models, in
       particular how to generate trading income. This is becoming more important for
       many of our customers.




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2.15 What help does your organisation need
the most over the next 6 months? (1=high
priority, 5=low priority)

Headline finding: Marketing and Promotion is the most wanted
support.




                                                                      Score
                           Marketing and promotion                       2.49
                           Other                                         2.92
                           Business planning                             3.19
                           Staff development - up-skilling               3.39
                           Managing change in your organisation            3.4
                           Access to credit (loan, working capital)      3.48
                           Board development                               3.7

Selected others:

   •   Assistance in opening up new business opportunities
   •   More help in making credit union debt a priority for insolvency considerations.
       Making payroll deduction for credit unions an employee right.
   •   Alternative forms of funding
   •   Networking with others in same line of work




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Marketing and Promotion



                                                 No. of
                                                 organisations      Percentage
                                   1 = High                      40     30.53%
                                   2                             41     31.30%
                                   3                             17     12.98%
                                   4                             12      9.16%
                                   5 = Low                       21     16.03%




Business Planning




                                                 No. of
                                                 organisations      Percentage
                                   1 = High                      25     19.68%
                                   2                             20     15.75%
                                   3                             31     24.41%
                                   4                              8      6.30%
                                   5 = Low                       43     33.86%




Staff development




                                              No. of
                                              organisations      Percentage
                               1 = High                       18    14.17%
                               2                              18    14.17%
                               3                              34    26.77%
                               4                              11      8.66%
                               5 = Low                        46    36.22%




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Managing change in your organisation



                                                      No. of
                                                      organisations Percentage
                                           1 = High              18    14.17%
                                           2                     22    17.32%
                                           3                     26    20.47%
                                           4                     13    10.24%
                                           5 = Low               48    37.79%




Access to credit



                                                      No. of
                                                      organisations Percentage
                                       1 = High                  30    23.81%
                                       2                         12      9.22%
                                       3                         11      8.45%
                                       4                         13      9.98%
                                       5 = Low                   60    46.08%




Board development




                                                      No. of
                                                      organisations Percentage
                                       1 = High                  15       12%
                                       2                         15       12%
                                       3                         22    17.60%
                                       4                         14    11.20%
                                       5 = Low                   59    47.20%




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2.16 What is your level of Business Link in London?
Headline finding: 58% of organisations reported having some
awareness about what BLiL can offer social enterprises. Only 19%
reported not knowing what BLiL can offer.




                                                                                No. of
                                                                                organisations      Percentage
I have a high level of awareness about what BLiL can offer social enterprises                   30    22.90%
I have some awareness about what BLiL can offer social enterprises                              76    58.02%
I don't know what BLiL can offer social enterprises                                             25    19.08%




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2.17 BLiL can offer the following services to social
enterprises. On a scale of 1 to 3 please indicate your level of
interest in these services. (1=Very interested; 3=No
interest)
Headline finding: The most popular BLiL support is ‘access to
information and resources through the Social Enterprise website’, with
89% either very or moderately interested.




                                                                                                Score
       1-1 advisory and diagnostic sessions                                                             1.95
       Access to information and resources through our social enterprise website                        1.67
       High profile seminars and conferences on key topics of interest for social enterprises           1.81




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121 advisory and diagnostic sessions




                                                                  No. of
                                                                  organisations   Percentage
                                         1 - Very interested                 40      30.30%
                                         2 - Moderate
                                         interest                           59          44.70%
                                         3 - No interest                     33            25%




Access to information and resources through our social enterprise
website




                                                                  No. of
                                                                  organisations   Percentage
                                         1 - Very interested                 57      43.18%
                                         2 - Moderate
                                         interest                           61          46.21%
                                         3 - No interest                     14         10.61%




High profile seminars and conferences on key topics of interest for
social enterprises



                                                                       No. of
                                                                       organisations Percentage
                                                1 - Very interested               53    40.15%
                                                2 - Moderate
                                                interest                           51       38.64%
                                                3 - No interest                    28       21.21%




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3. Interviews with lenders

We have conducted several telephone interviews with social enterprise lenders. In the
main lenders report no significant changes in practice or clear negative impact as a
result of recession.

      “Although in the first quarter of the year, the number of enquiries and
      applications was down, in the second quarter, the number and variety seem to
      be back to normal, so that if the recession and the credit crunch are having
      effects, with some social enterprises finding fewer opportunities for trading and
      others less access to capital, maybe these effects are cancelling each other
      out.” (Bruce Wood, London Rebuilding Society).

Lenders assumed that they would be receiving more requests for working capital from
enterprises but to date this hasn’t been the case.

Some lenders did note that the size of loans being requested by social enterprises is
increasing but put this down to the maturing market for loan finance. However, they
also noted that enterprises are taking longer to draw down agreed loans which may
be down to them becoming more cautious.

Whilst the impact of the recession isn’t clear, given that CDFIs traditionally deal with
individuals and businesses that are often at risk of exclusion from the mainstream
finance sector some are concerned that their clients will be further disadvantaged as
mainstream lenders toughen their service and lending conditions.

Lenders have already noticed a degree of self-exclusion amongst their clients. Some,
despite having a business account with a mainstream bank, assume they’ll be turned
down if they ask for additional help and therefore don’t make an approach.

In the medium term lenders feel that the state of central and local government
finances is likely to have a greater impact on social enterprises than access to and
cost of loan finance. Most social enterprises are still dependent to a greater or lesser
degree on public funding and support, including contracts and grant funding. Lenders
feel that as public funding becomes squeezed then social enterprises will be hit harder
than if banks and CDFIs charge higher interest rates or restrict access to loan funding.
This will particularly be the case for enterprises operating in non-statutory service
sectors such as art, social welfare, etc. which are likely to see funding reduced first
and most severely.




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4. Conclusions

Social Enterprise London (SEL) has the most robust contact data for the sector. ii Their
on-line database contains details for 400 organisations in London. This survey of
social enterprises in London achieved over 130 responses. This represents
approximately 33% of the total number of organisations contained on Social
Enterprise London’s directory.

Over a third of all enterprises (34%) responding to this survey are generating more
than 75% of their income through trading activity. However, a large number are
highly dependent on public funding.

Although some organisations are finding that their sales are being affected by
recession (29%) the largest number of respondents report no, or little, impact on
sales (50%). Survey responses would indicate that the next biggest impact is being
felt in relation to public grants and contracts. This could represent a significant and
potentially damaging threat to the sector. A view is that is widely held by lenders to
social enterprises in London.

Overall lenders feel that, since most social enterprises are still largely dependent on
public funding, then the state of the Government’s finances is likely to have a greater
impact on social enterprises than private finance. Cut backs in central or local
government funding for social enterprises will have more negative impact than banks
charging higher interest rates.

In terms of their relationships with mainstream and specialist lenders, social
enterprises are reporting no significant change. A slightly higher proportion of
respondents are reporting some positive impacts in their dealings with specialist
lenders (18%) compared with mainstream banks (13%). When asked some reported
that social enterprise lenders were:

                      ‘More willing to give advice-related activities’
                     ‘More proactive and prepared to offer support’

Over 50% reported that debtors are now paying more slowly, and 39% reported that
funders are also paying more slowly.

In the main social enterprises are reporting slight negative changes in their business
as a result of recession. However, most are unlikely to make any significant changes.
The sector is split 50:50 in terms of the potential opportunities that may emerge from
recession for social enterprises.

Those that have identified opportunities stated:

      ‘Ability to lend where banks won't – (The respondent is a specialist lender)’
           ‘Increased focus on worklessness plays to one of our core offerings’
       ‘Recruitment of highly skilled personnel who have been made redundant’.



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Indeed over 70% are planning for modest or substantial growth in turnover and 57%
foresee growth in staff numbers while only 11% of all organisations responding to this
survey expect their business to contract over the next three years.

This survey indicates that the sector is beginning to experience some negative effects
of recession, in terms of a down turn in sales as well as government grants and
contracts. Some enterprises indicate that they may need to reposition their business
in the market (41%); restructure the organisation (34%); and, upskill existing staff
(44%). But this is not a high priority.

Respondents have indicated that they need help with Marketing and Promotion (31%)
and Business Planning (20%) as a high priority. And this is an area where Business
Link London can provide support. But although 58% reported having some awareness
about what BliL can offer social enterprises 19% reported not knowing what BLiL could
offer. This suggests that the need for higher levels of publicity and promotion by BLIL
to better engage the sector.

In relation to the credit crunch there is little evidence that the sector is struggling to
access affordable finance. Lenders are reporting business as usual with no significant
changes in practice or clear negative impact as a result of recession.

On the whole the sector is broadly positive about responding to recession and can
even identify opportunities for future growth in turnover and staffing. There are
nevertheless risks which the sector faces in relation to its dependency on public
funding and the government’s need to reduce public spending. Changes in
government and or fiscal policy could have major consequences for social enterprise
in London.




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End notes


i
 The GLA take their definition for social enterprises in London from the DTI (2002). Social
Enterprise - A Strategy for Success: ‘A social enterprise is a business with primarily social
objectives whose surpluses are principally reinvested for that purpose in the business or the
community, rather than being driven by the need to maximise profits for shareholders and
owners.’ P5, GLA Economics, Social Enterprises in London: A review of London Annual Business
Survey (LABS) evidence. This publication also references, in the Appendix, other definitions
including OECD and SBS.

‘Social enterprises are organisations that take different legal forms in different countries, which
are organised in an entrepreneurial spirit and which pursue both social and economic goals.’
(OECD). This definition derived from the OECD represents a broad definition of social
enterprise which can include the activities of voluntary organisations that have some sort of
economic dimension to their activities but are not explicitly businesses. Secondly, social
enterprises can take more than one legal form.

The DTI’s Small Business Service (SBS) define social enterprises as: ‘… competitive businesses
owned and trading for a social purpose. They seek to succeed as businesses by establishing a
market share or making a profit. Social enterprises combine the need to be successful
businesses with social aims. They emphasise the long-term benefits for employees, consumers
and the community.’
ii
     http://www.sel.org.uk/directory/




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