Financing the social economy (May 2009)

8/3/2019 Financing the social economy (May 2009)

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FINANCINGTHESOCIALECONOMY

INTERIM RESEARCH REPORT

Draft Please do not quote or cite without author permission

MAY 2009

Community Economic Development InstituteCape Breton University

P.O. Box 5300, 1250 Grand Lake RoadSydney, NS, Canada B1P 6L2

George Karaphillis

DirectorCED Institute and MBA in Community Economic Development programCape Breton University

David Alderson

Student Research AssistantMBA in Community Economic DevelopmentCape Breton University

Stephen Moore

Student Research AssistantMBA in Community Economic DevelopmentCape Breton University


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FINANCINGTHESOCIALECONOMY

George Karaphillis, David Alderson, and Stephen Moore

Community Economic Development Institute, Cape Breton University

Abstract

This paper summarizes the results of a research study on Social Economy Organizations

as users of financing being carried out in the Maritime Provinces. The study aims to complete a

comprehensive survey of the financing needs and challenges facing organizations in the

Social Economy in the region. It examines the demand for external financing: it aims to

identify financing needs and challenges facing a sample of social economy organizations, to

determine characteristics of organizations that are successful in accessing external financing, and

identify the factors affecting such success.

We focused on samples of organizations within four geographical areas sufficiently

restricted that we could enumerate the population of social economy organizations within it,

namely Saint John NB, Cape Breton Island, Halifax regional municipality, and Prince Edward

Island. The results of the survey will enhance the capacity of organizations in the Social

Economy to access financing and to influence policy regarding the availability of financing.

Keywords: Social Economy, Social Economy Organization, Social Enterprise, Financing,Community Business, Non Profit

INTRODUCTION

The important role of the Social Economy in society is increasingly being recognized in

Canada and there is fairly widespread interest in understanding the structural characteristics of

the sector (Shragge & Toye, 2006). The role of financing in enabling entrepreneurial activity

and economic growth has been well recognized for years. Policy makers and governments in

many countries, including Canada, have sponsored significant research on SME financing

(OECD, 2006 and SME FDI 2006), and it has been recognized that financing gaps are

detrimental to the creation and growth of SMEs. Although the relative size of the Social

Economy is larger in Canada than in other developed countries (PRI, 2005), governments in

Canada have not shown comparable interest in SEO (Social Economy Organization) financing


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issues. There is some research published on the general types of financing instruments available

to social economy organizations in Canada, as discussed below. The Atlantic research node of

the CSE Hub believes there is great value in gaining insights on the financing issues affecting

local SEOs. This research initiative was spurred by community partners, such as the Canadian

Worker Coop Federation and the Saint John Community Loan Fund.

The study seeks to examine why and how SEOs are accessing and utilizing external

finance, and identify any common themes when SEOs apply for external finance. The study aims

to:

Identify issues with financing of the Social Economy in Atlantic Canada

Identify factors that make SEOs more likely to obtain external finance; and

Estimate the demand for finance in the Social Economy of Atlantic Canada.

REVIEW OF THE LITERATURE

Defining Social Economy Organization

The social economy is often spoken of as filling a void; it addresses the needs and

demands not met by traditional organizations in the public and private sector (Bank of England,

2003; Bouchard et al, 2006; Carleton CCI, 2006; Kay, 2005; New Brunswick, 2008; Quarter et

al, 2003; Teague, 2007). It developed as a response to the social issues created by the

mainstream economy and the limitations of the state to address inequalities through traditional

public sector organizations. The Social Economy emerged in a movement toward the creation of

an alternative economy built on social beliefs and goals inadequately addressed by traditional

economic entities.

Social Economy Organizations range in focus on a continuum from social to enterprise

(see Figure 1). Where an organization falls on the continuum will determine to what extent it can

be considered an SEO. Therefore, an SEO could be a registered charity, non-profit, private

enterprise with certain re-distributional socio-legal arrangements, or a social enterprise.

Figure 1: Continuum of Social Economy Organization models (Chernoff, 2008).


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The Bank of England (2003) defines a social enterprise as a business with primarily

social objectives whose surpluses are principally reinvested for that purpose in the business or in

the community, rather than being driven by the need to maximize profit for shareholders and

owners. The varied nature and plurality of organizational types considered SEOs is derived

from the varied nature of the social economy.

Bouchard, Ferraton, and Michaud (2006) have combined criteria used in defining

organizations in civil society and in defining organizations in the economy and have proposed a

set of four qualification criteria for Social Economy Organizations: economic activity, no

distribution of surpluses to members, voluntary association with legal and decisional autonomy,

and democratic governance. The multi-dimensional spectrum of organizational types is

illustrated in Figure 2, with the hard core of SEOs placed in the central rectangle.

Figure 2: Characteristics of social economy organizations (Bouchard et al, 2006).

Social Economy Organizations deliver many critical services in communities in Canada,

which are often undervalued (Scott, 2003). Quarter, Mook, and Richmond (2003) report the

Canadian social economy boosts an estimated 175,000 to 200,000 nonprofits, including 78,000

with a charitable status that generate revenues of more than $90 billion a year and employ 1.3


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million people (not including volunteers) [and] about 10,000 cooperatives that generate more

than $37 billion a year and employ about 150,000 people.

The National Survey of Nonprofit and Voluntary Organizations reported that 13,000

incorporated organizations and registered charities operated in Atlantic Canada and they generate

revenues of $5.7 billion (Rowe, 2006).

Access to Finance Issues for SEOs

The flow of capital into the Community Development Financial System has been

criticized as being inadequate to fulfill the supply needed to build healthy, vibrant communities

(Stanton, 2003). Adequate access to finance has been identified as a serious obstacle to the

growth of SEOs (Statistics Canada, 2007; Bank of England, 2003). Access to finance has

become more challenging as financial capacity for organizations and funders undergoes

restructuring, including governments attempting to balance budgets (Scott, 2003) and shape a

new course for sustainability. Further, global economic recessions take a toll on the social

economy by decreasing credit availability and decreasing foundation endowments, which in turn

cut grant availability (Schoning).

Raising funds is challenging for SEOs, especially in times of economic instability, as

they tend to be stuck in the middle between organizations raising money for charity and those

raising money for market rate financial returns (Schoning). For many SEOs, raising finance

within a capital gap, which occurs when organizations can no longer finance their CED assets

from their usual and customary funding sources (Stanton, 2003), is a daily challenge in ensuring

their financial survival and achievement of social or environmental goals.

Stanton suggests that access to mainstream capital markets tends to be limited for SEOs

due to systemic failure to apply capital market models, and calls for practitioners and capital

market professionals to apply what works in the capital markets and custom-tailor them for the

uniqueness of CED assets and processes (Stanton, 2003). This suggestion has its challenges,

including pricing (portfolio valuation), lack of document standardization, lack of mechanisms for

achieving scale, inadequate market and management expertise, and unequal access to bridge

funds (Stanton, 2003).

Benjamin, Rubin and Zielenback argue that most SEOs are located in depleted or

underdeveloped communities and that: Unfortunately, low-income communities and individuals


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have always had limited access to financial services, affordable credit, and investment capital

(Benjamin, Rubin, & Zielenbach, 2004). Cameron (2007) echoes this concern: Some non

profits, coops and other social economy organizations are unable to attract the equity needed to

leverage conventional debt instruments. This is because many social economy organizations

have social outcomes as their primary goal. Social economy enterprises may have a limited

return on investment capital expected (or no return at all). The social economy organization may

have a high social value, good management and may be financially viable, but unable to access

financing. Rubin (2008) later states the lack of access to finance for SEOs and for community

development is a fact that greatly hampers efforts to improve conditions in these areas (p. 1).

Because of their mission and role in society, SEOs traditionally depend to some extent on

government for grants to finance their operations. Draimin (2008) states that most non-profit

organizations in Canada are primarily financed by provincial governments, at 40% of their

revenue on average (see Figure 3). However, given the current economic context and recent

economic history, the public sector itself is operating in an environment where disequilibrium

and marginalization in the mainstream economy places an increasing strain on government

budgets. This results in less money being available for SEOs. Over the last few years there has

been a definite trend for government grants to move away from core funding and to take the

form of short-term project-based funding. This problematic pattern has registered major concerns

in the sector (Hebb, 2006; Rowe, 2006). To gain government funding, SEOs now may have to

address government priorities and, therefore, face having to sacrifice their goals or have a

tendency to drift from their missions (Scott, 2003).

Figure 3: Sources of income used by non-profits (Draimin, 2008).


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In response to this funding dilemma, SEOs have been shifting towards self-sufficiency

through entrepreneurial and enterprising ventures, (Dees, 1998; Scott, 2003; Dart, 2004;

Eikenberry and Kluver, 2004; Dubb, 2005; Foster and Bradach, 2005; Haugh, 2007).

Recognizing trends of decreasing funding availability and increasing demand for services, SEOs

are spurred to seek other external financing sources and initiate or increase their market activities

to fund their organizations missions.

Sources of external financing for SEOs

Finance options for SEOs include both equity and debt financing, which may be provided

at below-market or market rates (see Table 1). Hebb (2006) argues that, due to capital market

barriers, SEOs/Social Economy Enterprises (SEEs) are dependent on other forms of finance:

Access to capital at below market rates combined with grants contributions and

philanthropic donations are critical for social economy enterprises. However,

there are few capital sources beyond Community Development Finance

Corporations or Credit Unions, most sources of capital are not prepared to engage

in below market loans or investments. Current legal and normative structures of

capital markets are barriers to SEE growth.

Table 1: Financing Sources for Social Economy Organizations (Hebb, 2006).

Debt EquityBelow-market Governments, philanthropists

Below-market and/or

market-rates

Community Development FinanceInstitutions, Credit Unions

Market-rates Banks Mutual funds, laboursponsored funds,institutional investors

Sources of financing available to SEOs include:

1. Government Programs (at all levels) in the form or grants, contributions, and contracts;

2. Aboriginal Community Economic Development funding;

3. Philanthropy, including donations;

4. Community Development Finance Institutions (CDFIs), which capitalize themselves

through a mixture of public, private, and philanthropic investment and contributions

(Stanton, 2003), and include:


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a. Community Loan Funds;

b. Community Development Corporations;

c. Revolving Loan Funds;

d. Community Development Credit Unions; and

e. Micro-lending Financial Intermediaries;

5. Consumers (fee for service);

6. Credit Unions and Co-operatives, Co-operative Banks, Charity Banks;

7. Banks;

8. Socially Responsible Investment Mutual Funds;

9. Labour Sponsored Investment Funds and other Tax Credit Investment Funds;

10.Angel Investors; and

11.Institutional Investors (pension funds, insurance).

(Hebb, 2006; Stanton, 2003)

Innovative community development financing mechanisms have been developed for

supporting social economy initiatives. In Canada, these mechanisms take the form of social

enterprise funds or trust, or tax credit programs. In Atlantic Canada, the Saint John Community

Loan Fund, for example, has provided a community investment vehicle in the Saint John, New

Brunswick region since 1989 (Saint John Community Loan Fund, 2009). The Nova Scotia

Equity Tax Credit and Community Economic Development Investment Funds (CEDIFs) enable

SEOs and communities to pool capital to be invested in community economic development

initiatives (Province of Nova Scotia, 2009; Chernoff, 2008). Both of these vehicles deal

effectively with the issue of prohibitively high-transaction costs associated with issuing equity.

They both enable communities to create tax-advantaged equity pools by using readily available

community resources and thus avoid high IPO fees and expenses.

RESEARCH GOALS

There is agreement in the literature that the issues surrounding the financing of the

social economy and how SEOs utilize and access external finance are central to the

sustainability of the sector and the organizations therein. However, existing research has

concentrated on the financing options and instruments available for SEOs and the criteria

used by financial institutions. There has been little research on the demand and supply for


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external finance for SEOs, the uses of financing, and the challenges SEOs face in obtaining

financing; for Canada in general and for Atlantic Canada in particular.

The federal government sponsored a survey on financing of CoOperatives in 2007,

the first major government research initiative in the sector in years. The survey highlighted

that onefifth of cooperatives find financing as a major obstacle to the growth of their

organization, and that Cooperatives in Atlantic Canada were the least likely to receive the

full amount of financing requested (Statistics Canada, 2007)

As the Cooperatives survey indicated, financing challenges in Atlantic Canada are

probably more acute.

The research priorities for our project are:

(a) Survey the demand of external financing in the Social Economy in Atlantic Canada,

including the amount and type of financing used by the SEOs, the purpose/use of financing, the

results of past searches for financing, and the intent for future financings.

(b) Identify SEO characteristics that make SEOs more likely to obtain external finance

(c) Determine patterns and trends in SEO financing, and any possible sub-sector, provincial

jurisdiction, and urban vs. rural effect on external financing success.

METHODOLOGY

The survey focused on a sample of organizations within a geographical areasufficiently restricted that we can enumerate the population of social economy

organizations within it. A sample can then be drawn that includes representatives of each

organizational type of social economy organization, representatives of each subsector, and

representatives from a variety of organizational size and age. We believe there is value in

being comprehensive with regard to the range of organizations in the social economy in a

particular area rather than geographical range of the sample. The regions initially included

in the survey are Cape Breton Island, Nova Scotia and Saint John, New Brunswick. Later the

project scope was enlarged to include Prince Edward Island, and the Halifax area as a more

homogeneous urban sample.

The first major task in the research project was to determine the survey sample: to

develop a database of SEOs in the target areas. In consultation with the community

partners, we settled on using the Chaire de Recherche en Economie Sociale criteria in


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screening SEOs: economic activity; rules on limiting distribution of surpluses; formal voluntary

association; and democratic governance (Bouchard, Ferraton and Michaud, 2006). There is no

comprehensive database of SEOs in the region and the researchers spent a lot of time in

assembling lists from different sources. As of April 30 2009, over 3000 SEOs had been

identified in our compiled raw listing. By applying the four criteria described above, this

listing was reduced to 913 SEOs whom became the sample for survey distribution (see

Table 2). Surveys were distributed to SEOs in 20089 and they could be submitted in

hardcopy or completed online at www.cbu.ca/cedsurvey (SEOs).

Table 2: Responses to the SEO survey as of April 30, 2009

Cape Breton Halifax Saint John PEI TotalNo. of Organizationsin raw list

585 1300 356 764 3005

No. of surveysdistributed to SEOcandidates

122 414 146 231 913

No. of surveysreceived

85 59 35 38 217

Response Rate 70% 14% 24% 16% 24%

No. ever soughtexternal finance

60 33 24 18 135

No. ever soughtexternal finance andmeet all SEO criteria

53 22 16 15 106

As of April 30 2009, 217 surveys have been received, the majority of which came

from Cape Breton Island with a significant 70% response rate. The surveys include self

screening questions to ensure the respondent SEOs met the four qualifying criteria. Out of

217 responses, 135 have sought external finance, 118 generate significant revenue, and

106 have sought external finance and generate significant revenue. It is important to note

that this research project has been extended, with expected increase in both survey

distribution to, and response rate from, the Halifax NS, Saint John NB, and Prince Edward

Island areas. In addition, we have gained the cooperation of a community partner in

Newfoundland and we will be surveying that area also this spring and summer.


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PROFILE OF SEOS

Size

Most of the SEOs surveyed were small organizations, with the majority (51 %) having 5

employees or less; 5% of the SEOs did not have any paid employees - they operate exclusively

with volunteers (see Table 3). Similarly, 35% of the SEOs had an operating budget below

$100,000. However, an impressive 30% had operating budgets over $500,000 ! (Table 4)

Table 3: Size of SEOs Table 4: Operating budget of SEOs

Numberofemployees

0employed 5%

15employed 46%

620

employed

30%

2150employed 11%

51+ 8%

AnnualOperatingBudget

Under$50,000 17%

$50,000 $100,000 18%

$101,000$250,000

17%

$251,000$500,000 19%

$500,000+ 30%

Age

The majority (61%) of SEOs surveyed were established for more than 20 years.

nly 5% were less than 5 years old.O

Organization type

The survey included a multipleanswer question on the organizational type and the

majority of SEOs picked Not for profit (59%), followed by Registered Charity (29%) and

Cooperative (26%). That is, a third of the SEOs said they had charitable status and one

quarter of the SEOs said they are Cooperatives (Table 5). Only 10% of SEOs saw

themselves as a community enterprise or a social business!

The surveyed organizations operated across a wide range of subsectors within thesocial economy, as summarized on Table 6. The most common subsectors were

Culture/tourism/recreation and Education/training. SEOs were permitted again to select

multiple subsectors, as some do operate in various subsectors.


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Table 5: Type of SEO organization as chosen Table 6: Sub-sector of SEO

by the SEO organization (multiple answers) (multipleanswers)

Revenue

The majority of SEO respondents (54%) reported that sales income was a significant

part of their revenue. and nearly half (49%) stated that government grants was a

significant part of their revenue. Other significant sources of revenue included donations,

reporte

Type of Organization

Cooperative

26%

Communityenterprise,Socialbusiness 10%

Registeredcharity 29%

Notforprofit 59%

Privatebusiness 9%

Voluntarysector 11%

Association 4%

Society 13%

Other 4%

Subsector %ofSEOs

Education,

training

23%Environment,recycling 5%

Careelderly&disabled 14%

Childcare 21%

Health,personalservices 17%

Culture, tourism,recreation 26%

Agriculture,forestry,fishing 6%

Retail 11%

Housing 10%

Media/ICT 4%

Other 20%

d by 37%, and membership fees reported by 21% of SEOs.

The survey probed further, with a question on the proportion of their income that

was derived from sales of goods and services, as this is one of the four qualifying criteria

for SEOs; sales was defined to include income from contracts to provide services on behalfof government. Respondents with no such income were removed from the survey. The

majority (68%) of qualified SEOs reported that sales income accounts for the majority of

their revenue; for over 50% of their revenue ! The majority of them (51%) also mentioned

that sales increased over the last 3 years.

DEMAND FOR EXTERNAL FINANCE

We defined external finance as all financing that is not generated from within the

organization, such as loans, mortgages, capital leases, equity financing, and government

grants. Seventy five percent of the SEOs surveyed have sought external finance at some

time in the past, and sixty percent of the SEOs have sought external finance for the current

year. Seventy three percent of the cooperatives in our sample indicated they had sought

external finance in the past and forty four percent of them indicated they had sought


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external financing for the current year. That is comparable to the 35.2% response by

Canadian cooperatives and the forty six percent response by Atlantic cooperatives in the

2007 survey by the government of Canada (Statistics Canada, 2007).

For the SEOs that indicated they had sought external finance, three types of external

finance were predominantly sought since the organization was established: government

grants, loans/mortgages, and lines of credit, as shown on Figure 4. Twothirds of the SEOs

that sought external finance in the past indicated that they have pursued government

grants, the most popular type of financing by far. Onethird of the respondents who had

sought external finance indicated they had pursued loans and another onethird indicated

they pursued a line of credit, while onefifth mentioned they pursued mortgages.

Type of external finance sought

0% 10% 20% 30% 40% 50% 60% 70%

Line of credit

Loan

Loan guarantee

MortgageShare issue, equity

Leasing asset

Grants

Other

% of SEOs surveyed

Figure 4: External financing sought by SEOs (multiple answers permitted)

N=104

Onequarter of the SEOs reported that had never sought external finance and the

vast majority of them (93%) selected NoNeedfrom a list of possible reasons. Otherfrequent reasons selected were preference to donations, risk aversion by board

members/management, and not having enough income/assets. Seven percent mentioned

legal restrictions, as charities and some other organizations do have restrictions against

borrowing debt. Summary of responses is presented on Table 7.


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Table 7: Reasons for not seeking external finance (multiple answers permitted)

Noneed 93%

Preferdonations 61%

Boardmembers,trusteeswonttakerisk 12%

Management/Directorwonttakerisk 5%

Notenough

income

12%

Notenoughassets 7%

Banksdontunderstandus 7%

Legalrestrictionspreventingborrowing 7%

Other 22%

Expansion of services and production was selected most often by SEOs when they

were asked on the reasons for their most recent external financing. The purchase of

equipment and purchase or renovations of a building were the other dominant reasons, as

summarized on Table 8. Forty three percent of SEOs mentioned that they increased their

external financing over the last three years.

Table 8: Reasons for most recent external financing (multiple answers permitted)

Toexpandservices,production,ortradingactivity 42%

Tobuyequipment 38%

Tobuyorrenovatebuildings 35%

Tocoveroperatingexpenses,cashflowdifficulties 26%

Forworkingcapital 24%

Other 13%

The survey indicates that nearly half of the SEOs received less than $50,000 in

external financing, while 8% percent of the SEOs did not receive the amount of external

financing they sought last year and that 7% of them received none! However, the vast

majority of SEOs which sought financing (93%) received some external financing in their

current fiscal year.

Figure 5

External Financing Received this year

4% 5%

28%

11%

45%

7%

$1,000,000 or more

$500,000-$1,000,000

$100,000-$499,999

$50,000-$99,999

Less than $49,999

None

N = 81


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When asked if the organization had ever been rejected when sought external

finance, forty one percent of the SEOs responded that they were! This is certainly much

higher than the 10 % to 20% rejection rate for financings by SMEs reported in the

literature (OECD, 2006 and SME FDI 2006), and the high success rates reported in the recent

co-operatives survey (Statistics Canada, 2007). Our survey also asked why they think they

were rejected and the following were provided by the respondents (multiple answers solicited):

They do not finance social enterprises 24% of respondents

Unstable or insufficient revenue 20%

Concerns about the purpose or use of funds 16%

Insufficient grant funding for all 16%

Format of proposal, business plan submission 12%

Insufficient collateral 6%

C

oncerns about organizations mission or goals 4%

Our sample size is fairly small and we certainly advise that these results should be treated

with caution; additional data to be collected over the next 12 months will enable us to use such

data with more confidence.A large portion of SEOs (38%) have indicated that they are planning on expansion or

creation of a new social enterprise. The majority of the respondents who are planning an

expansion stated that over $100,000 in external financing is required, thirty percent

actually stated that over $500,000 will be needed! (See Figure 6)

Figure 6

Financing required for expansion

30%

34%

11%

19%

6%

$500,000 or more

$100,000-$499,999

$50,000-$99,999

$20,000-$49,999

Less than $20,000


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When asked how they plan to finance the expansion, the majority of respondents

stated that grants will be a part of the mix (multiple answers allowed). The second highest

response mentioned fundraising among members and public, and there was some mention

of equity financing:

Grants 64% of respondents

Raise funds from members, public 40%

Loan 28%

Mortgage 19%

Retained surplus 17%

Line of credit 13%

Share issue, equity investment 11%

Loan guarantee 6%Leasing 2%

The low use of asset leasing by SEOs is a bit surprising. Recent SME surveys indicate

that 30% of small and medium size enterprises in Canada use leasing in their financing mix

(SME FDI 2006). Restrictions placed on the use of assets owned by SEOs may explain the

low incidence of lease financing.

Findings

The survey results suggest that established SEOs that have high operating budgets

and SEOs that have many employees account for the majority of external financings. Fifty

five percent of the successful external financings by SEOs surveyed are accounted by SEOs

that have an annual budget that is above $250,000. However, SEOs with budgets over

$250,000 are 54% of the SEOs that sought financing and they are 49% of the total SEO

count; no significant discrepancy evident.

Similarly, 57% of the successful financings are accounted by SEOs that have more

than half of their revenue derived by sales of goods and services. At the same time these

SEOs account for 62% of the SEOs that sought financing or 68% of the sample; again not a

significant discrepancy at less than 9 percent.


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Regarding age of the organization: 67% of successful financings of the SEOs

surveyed are accounted by the SEOs that are over 20 years old. However, this group of

SEOs represents 66% of the count of SEOs seeking external finance no discrepancy here

either.

It is interesting to observe that the chance of success in external financings for an

SEO is independent of size and age. These are typically significant differentiators in other

sectors, but the SEO survey data to date does not indicate a correlation. This is a

preliminary look at the survey results. There are obviously other factors at play, yet to be

identified.

CONCLUSIONS & FUTURE RESEARCH

A high proportion (75%) of social economy organizations in the Maritimes has been

seeking external finance, and a high proportion (38%) of these organizations is planning an

expansion. The majority stated that they require more than $100,000 to fund the

expansion, onethird of the respondents actually require over half a million. This should be

contrasted to the fact that only 7% of the SEOs surveyed mentioned that they raised more

than $500,000 in external finance last year! Pursuing this high level of external financing

for expansion will obviously be very challenging.

Sixtyfour percent of those planning an expansion intend to pursue government

grants, a much more dominant choice than any other form of external finance. At the same

time social economy organizations are reporting that grants are becoming more

competitive, indicating that a few organizations will not be able to expand without

pursuing other forms of financing.

This reliance on grants is also supported by the 25% of respondents who have

stated that they have never pursued external finance. SEOs seem to be averse to pursuing

external finance, stating their preference for donations and that the board andmanagement will not take risk. However, 75% of SEOs have pursued external finance and

41% have been rejected at some time, significantly higher than the rejection rate SMEs

have experienced. 24% of the rejected ones stated that the main reason is that they

(banks, governments) do not fund social enterprises. Respondents also mentioned that


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revenue was viewed as unstable/insufficient, collateral was insufficient, and that financiers

had difficulty with the purpose/use of funds.

It is well understood that although SEOs deliver goods and services and create jobs,

that their goal to maximize societal and community benefits creates challenges in obtaining

conventional financing. Our research project has been extended and we intend to collect

more detailed survey data from all four Atlantic Provinces and explore subsector,

jurisdictional, and urban/rural effects on external finance. We also intend to research the

supply of external finance to SEOs in Atlantic Canada, explore differences in understanding

between financiers and SEOs on the critical factors for obtaining external finance, and

estimate the financing gap for the social economy in Atlantic Canada.


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