CWB and finance - part 3:

Providing investment that works for social enterprises and their communities

Josiah Lockhart, CEO FirstPort, Scotland’s agency for start-up social entrepreneurs and social enterprise, and the blog's author.

Josiah Lockhart, CEO FirstPort, Scotland’s agency for start-up social entrepreneurs and social enterprise

As we move towards developing ways to live with the residual effects of COVID and begin to turn our attention towards responding to the very real effects of Climate Change that are happening on our doorstep, communities are starting to develop new solutions and innovative ideas to tackle these locally.  We know the challenges ahead of us are great, so it is important that we also respond and adapt the way we invest in these ideas by bringing in new funding mechanisms that are better suited to tackle the long-term challenges ahead.

Scotland has a vibrant social investment ecosystem with a variety of products on offer making an impact up and down the country.  But despite that, there are still community and social enterprises struggling to access finance that matches their revenue model. 

Prior to COVID, the Firstport team analysed the enterprises it interacts with and discovered a trend of around 300 social and community enterprises every year that were unable to access the right kind of finance due to their age, geography, sector, or ambitions, with many of these either never starting, or converting to a private enterprise as a result.  While there are grants and zero-interest loans available through Firstport’s Social Entrepreneurs Fund, these are limited to £25,000-£50,000, and what was needed was a flexible fund that could dynamically adapt to the changing circumstances of the enterprises and support organisations at an early stage.

This month Firstport, in partnership with Social Enterprise Scotland, and backed by a £15m investment from the Scottish Government, is launching the Catalyst Fund, a new loan fund specifically focused on those social and community enterprises whose models, plans, or stage of development don’t make them suitable for more traditional social investment. This fund is designed around a patient, revenue-based repayment model where the total cost of the loan is agreed upfront at day one, and enterprises repay based upon a percentage of their non-grant turnover until the agreed figure is repaid.  This means payments are low in months of low revenue, and higher in months of high revenue.

Having worked in and supported community enterprises for the bulk of the last 15 years, I understand the worry that enterprising revenues might not always match loan repayments.  In the Catalyst Fund model, that balance is built-in with revenues defining how much is repaid in the given period.  While not suitable for every enterprise, the Catalyst Fund will particularly suit enterprises that have a high start-up or growth cost but will not see revenue for a couple of years.

The finance principle of Community Wealth Building is about ensuring that flows of investment work for local people, communities, and businesses.  Social enterprises, by their nature, respond to local circumstances and make a positive contribution to their communities.  Providing these enterprises with investment mechanisms that give them the flexibility and time needed to make a long-lasting impact is one of the ways we can help build stronger, fairer communities.

If you are interested in finding out more about the Catalyst Fund, keep an eye out on Firstport and Social Enterprise Scotland social media accounts or visit the Firstport website.

Josiah Lockhart is one of Scotland’s leading social entrepreneurs and serves as the Chief Executive of Firstport for Social Entrepreneurs Group. Josiah joined the team in 2017 after 13 years as a change manager overseeing the founding and re-development of a number of social businesses across the world including some of Edinburgh’s flagship social enterprises.  As a leading voice and champion of the sector, Josiah works with local, national and international partners to help build a more equitable and impact economy.

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