In fulfilling their social goals, social enterprises typically operate in failed or thin markets and/or have cost structures that constrain their financial returns. At the same time, social enterprises face big challenges trying to access mainstream finance and social impact investment. As a result, many social enterprises are undercapitalised making them vulnerable to economic shocks such as COVID-19.
Limitations in accessing finance can be a result of a lack of sufficient assets and security against which to borrow and higher input costs and thinner profit margins. These factors constrain the ability to build cash reserves, service loans and access finance from lenders that use traditional credit assessments.
The majority of social enterprises in Victoria are incorporated as not for profits (NFPs) and this affects their ability to access finance.
There is significant evidence to suggest that social enterprises require ‘demand-led social finance’. For more detail read Theme 2 of the Discussion Paper.
Some questions to get you thinking. Respond to one or more of these, or add your own questions, reflections and insights relating to this theme in the space below. If you have more to say, consider making a full submission.
What types of external finance are most needed by Victorian social enterprises, and on what terms?
What current products and offerings are working and what is needed?
What role should the Victorian Government play in supporting social enterprises to access appropriate social finance?
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