Guidance note: Access to Finance

Overview: how can access to finance by social enterprises be supported?

This policy guidance note describes different approaches and instruments to support access to finance for social enterprises, considering demand and supply sides. It is structured around good practice statements included in the action area “Access to Finance” in the Social Entrepreneurship component of the Better Entrepreneurship Policy Tool developed by the OECD Centre for Entrepreneurship, SMEs, Regions and Cities and the Directorate-General for Employment, Social Affairs and Inclusion of the European Commission:

Access to finance has been identified as a key policy lever in building ecosystems for social enterprises by the European Economic and Social Committee, the OECD, and the European Commission’s Expert Group on Social Entrepreneurship (GECES). This guidance note considers the issue of financing social enterprises (rather than buying services from social enterprises, which is covered in the action area on access to markets).

Social enterprises are entities that primarily pursue a social mission, while operating in the market. To start-up, operate and scale-up they seek financing from diverse providers, including public sector, philanthropic foundations, impact investors, as well as mainstream financial institutions. However, social enterprises often face barriers in this process. For instance, they may not meet all the predefined funding criteria set by mainstream finance providers. There is also a common lack of understanding and knowledge among finance providers regarding the risks and returns associated with investing in social enterprises. Therefore, few external funders may be prepared to bet on them.

To access finance, social enterprises often need strengthened capacity to become more financially selfsustainable and less reliant on public and private grants. This implies the need to develop appropriate skills to build sustainable (and scalable) business models and attract investment. Many social enterprises depend on so-called “boot-strapping” techniques, often finding it difficult to scale-up. Increased access to finance can help resolve some of these bottlenecks and make sure that social enterprises can realise their full potential. To deal with both potential finance providers and investees, this document considers the topic of access to finance from the perspective of the demand and supply sides.

For the demand side,  social enterprises need to become increasingly investment ready and develop their capacity to better communicate with potential funders and finance providers. Social enterprises continue to play an important role as suppliers of services or goods to the public sector, and thus tend to be recipients of subsidies, for example when employing people from disadvantaged pgroups. However, the role of social enterprises as “investees” is a relatively more recent phenomenon. As investees, social enterprises are expected to produce a social return on investment, and often also a financial return.

For the supply side, there often tends to be insufficient supply of private funding, partly due to a lack of visibility and understanding of social enterprises among mainstream finance providers. There is also a certain narrow-mindedness and engrained risk-return attitude among many investors. These issues are further compounded by regulatory hurdles and lack of incentives associated with investing in social enterprises. The amount of financing that most social enterprises need is relatively small due to their size, which means that financial intermediaries incur high transaction costs in relation to the size of funding provided and the projected financial return. In addition, exit scenarios are often missing, as it is difficult for social enterprises to return investments according to standard business rates and timeframes, at least at the level of capital repayment. While financing needs vary according to the stages of development of social enterprises, opportunities to meet their needs also differ between countries. With this in mind, it is important to take into account the role of the public sector in terms of: (i) purchasing services from social enterprises, and; (ii) acting as an investor in social innovation by financing social enterprises that experiment with new solutions that can be replicated and scaled; (iii) developing de-risk mechanisms (e.g. guarantee schemes) to facilitate social enterprises’ access to mainstream finance.

In a nutshell, the demand side needs to be supported in order to create more investment ready social enterprises, while the supply side needs more well-informed investors and support for the development of intermediaries, investment incentives and better regulation for investors. There is also need to design co-funding schemes with public financial resources and to support intermediaries that can help broker the relationship between finance providers and social enterprises and build their capacity

Policy Levers for Access to Finance:

  • Support the creation and development of intermediaries that can help strengthen the capacity of, and availability of finance for, social enterprises.
  • Encourage the participation of mainstream finance providers and social investors in financing for social enterprises, by providing incentives and alleviating regulatory barriers to investment and
  • Leverage scarce public funding by using it to de-risk private funding and develop hybrid mechanisms that blend public and private investment.


Pitfalls to Avoid

  • Avoid focusing on increasing supply of finance without taking into account the investmentreadiness social enterprises (i.e. the demand side). Actions need to consider both sides, otherwise they may be counter-productive.
  • In less mature markets, avoid replicating the latest innovations in more mature markets without having a similar ecosystem in place. Instead, consider the various components needed to build up the capacity of all actors.

Guidance per assessment statement

4.1. The financing market has been mapped.

We invite you to examine whether the financing market has been mapped in your territory in order to inform policy actions. Who are the main actors that provide finance to social enterprises? Are there any intermediaries that help to match the needs of social enterprises with the available financial resources?


Why is it important?

The financing needs of social enterprises are different depending on their type of organisation (e.g. nonprofit, cooperative or for-profit limited liability company) and stage of development (e.g. start-up or scale-up phase). To satisfy these different needs, consideration must be given to the maturity of the market, availability of specialised investors in the territory, and the willingness of mainstream funders to support social enterprises.

A first step for the development of tailored policy actions should therefore be to map the financing market at national, regional and local levels. Such a mapping exercise would make sure that policies developed are appropriate and make sense for the specific context. A mapping exercise could include identifying the funding needs of social enterprises, as well as identifying and assessing the activities of main funders, intermediaries and investors. The end result would be to have a clear idea of the market gaps and the most pressing needs that call for policy action.


In order to score high, in your context:

  • The financing needs of social enterprises have been assessed.
  • The main actors providing funds to social enterprises have been identified.
  • The main types of financial intermediaries have been identified.
4.2. Social enterprises have access to the appropriate type of financing for their stage of development.

We invite you to consider whether the available financial resources in your territory correspond to the diversity of the organisational structures of social enterprises and their stage of development. Is there a wide array of financial resources that can meet the needs of social enterprises? Are there hybrid instruments that combine different features of financial instruments available to social enterprises?


Why is it important?

Social enterprises may operate with different organisational structures, including for-profit limited liability companies, cooperatives, community interest companies, and non-profit organisations (associations, foundations, mutual companies, charities, trusts, etc.). It is also quite common for social enterprises to be “hybrid organisations”, with both non-profit and for-profit subsidiaries. Depending on the legal form and organisational structure, social enterprises can access different types of financing. For instance, a non-profit organisation cannot take on equity investment, whereas other forms of social enterprises like community-interest companies can (within certain limits).

Social enterprises also have different financing needs depending on their stage of development. For example, at the start-up stage it is more difficult to take on debt financing as it can take time before the social enterprise is ready to pay back any principal and interest payments. Therefore, social enterprises need access to a range of different financing instruments able to cater for their needs according to organisational structure, stage of development and size. Hybrid financing instruments exist in order to combine the attractive features from different financing instruments, thereby helping to create a financing package that is attractive to both social enterprises and investors (see good practice example below).


In order to score high, in your context:

  • Grants and other subsidies are available.
  • Debt financing is available.
  • Quasi-equity or mezzanine finance is available. (cloud: a high-risk loan, repayment of which depends on the financial success of the social enterprise, for example through royalties based on the future sales of a product or service)
  • Quasi-equity or mezzanine finance is available.
  • Equity financing is available.
  • Innovative hybrid financing instruments that combine grants, debt, quasi-equity and equity are available.1


Good practice example


Financing Agency for Social Entrepreneurship (FASE): An intermediary for hybrid financing (Germany)

The Financing Agency for Social Entrepreneurship (FASE) is a financial intermediary providing hybrid financing to social enterprises. It uses a highly tailored “deal-by-deal” approach in order to designinnovative financing schemes that match the needs of social enterprises and impact investors. FASE has developed several innovative collaborative financing models, which can be assigned to three basic categories: 1) tailored financing; 2) hybrid co-operation; and 3) innovative financing.


Tailored financing

FASE has developed two tailored financing models: (i.) the mezzanine capital with revenue participation and social impact incentive, and (ii.) mezzanine capital with profit participation and social impact incentive. These financing models are specifically designed for hybrid social enterprises with both nonprofit and for-profit subsidiaries. In general, while non-profit legal entities are able to accept donations or public grants, the most appropriate financing instrument for-profit subsidiaries is typically quasi-equity (e.g. mezzanine capital). Both models feature a social impact incentive in the form of a one-time final payment dependent on the enterprise’s impact.


Hybrid co-operation

This second group features two solutions combining different types of investors in a single deal. The first one is equity donation with impact investment that combines philanthropic funds and investment. The second one is crowd investment with impact investment that splits the financing of the hybrid social enterprise between a crowd investment and an impact investment. Crowdfunding is very beneficial as it is highly flexible: the crowd can either finance the non-profit entity through donations, or support the forprofit organisation with investments.


Innovative financing

Two additional co-operation mechanisms address gaps in the social finance ecosystem, but require a separate financing vehicle. The early-stage co-investment fund is the most advanced such vehicle and tries to secure more financing for early-stage social enterprises by offering impact investors access to a diversified portfolio of early-stage deals

For more information, please see Innovative financing

1 For explanations of financial terms, see the glossary in the assessment part of the Better Entrepreneurship Policy Tool:

4.3. Social enterprises are supported by a number of specialised service providers.

We invite you to consider whether there are specialised service providers in your territory that help social enterprises to enhance their skills to find, attract and communicate with funders. If there are, are the services provided affordable for social enterprises? Is there any financial support that can help social enterprises access these services?


Why is it important?

Social enterprises might lack the capacity or knowledge to find, attract and communicate with funders. Capacity building needs are thus often closely linked to funding. At the pre- start-up and start-up stage, the social enterprise may need skills and experience associated with accessing and utilising different types of funding, or the skills to become financially self-sustainable. At an early growth stage, social enterprises often need assistance to professionalise their processes and functions. At a later growth stage, social enterprises may benefit from support to create investment-ready business models in order to scale their impact. Specialised service providers and intermediaries can be instrumental in this regard, matching the needs of social enterprises with specific skills development programmes and available funds.

In less mature markets, policy makers can support the emergence of specialised service providers that cater to the needs of social enterprises. In more mature markets, investment-readiness programmes can be set up directly by existing specialised service providers to help social enterprises become investment ready. Public agencies can contribute to the development of this part of the ecosystem. For instance, they could identify and provide a list of pre-approved specialised service providers that social enterprises can call upon for high quality support, and which are potentially within their reach in terms of costs, since the services provided by specialised providers tend to be expensive. Financial support (e.g. a grant or a voucher) that allows social enterprises to access such services at a subsidised price (or without cost) may also be warranted.


In order to score high, in your context:

  • Specialised services providers help social enterprises to develop the capacity to find, attract, and communicate with funders.
  • These services are affordable.
  • If these services are expensive, financing support is available to social enterprises for accessing them.


Good practice example

Portugal Inovação Social (Portugal)


Portugal Inovação Social, established in 2015, acts as a market catalyst promoting the social investment sector in Portugal. It also supports the emergence of specialised services providers. Through one of its programmes focussed on capacity-building, Portugal Inovação Social aims to ensure that social enterprises can access the support services necessary to prepare them to become investment ready, and thus grow and expand their work effectively. Through a voucher system, Portugal Inovação Social provides grants of up to a maximum of EUR 50 000 to social enterprises, enabling them to access support from specialist providers in areas such as financial management, business modelling, impact measurement, leadership and governance. The full programme has EUR 15 million of available funding, and is expected to reach between 250 and 500 social enterprises by 2020. As a market catalyst, Portugal Inovação Social is thus using this programme to level the playing field among social and commercial enterprises, reducing the barriers encountered by social enterprises in accessing specialist services.

For more information, please see Portugal Inovação Social (Portugal)

4.4. Sufficient number of specialised private funders actively target social enterprises as an investment opportunity.

We invite you to examine the extent to which there are specialised private funders for social enterprises in your territory. Do these providers treat social enterprises as investment opportunities? Does this reflect the level of maturity of your ecosystem? Are there any policy actions, such as provision of funds, which contribute to the development and growth of these specialised private funders?


Why is it important?

Specialised private funders (e.g. venture philanthropists, impact investors, ethical investors, social crowdfunding platforms, etc.) can act as catalysts for boosting the social enterprise financing market in various ways. For instance, they can introduce innovative financing instruments that combine grants, debt and equity. They can also mobilise resources and de-risk mainstream financing in order to make it accessible to social enterprises. In addition, specialised private funders can increase the attractiveness of social enterprise financing by highlighting success stories and convening key stakeholders in events to support social enterprises. Yet, specialised private funders that actively target social enterprises as an investment opportunity are still limited in number, especially in less mature markets. In addition, they often struggle themselves in a resource-scarce environment. Therefore, policy-makers can consider leveraging public funds to support the development and growth of specialised private funders.


In order to score high, in your context:

  • Specialised private funders are actively targeting social enterprises as an investment opportunity.
  • Public funding is used to incentivise specialised funders to actively finance social enterprises.


Good practice example

European Investment Fund’s Social Impact Accelerator- an EU-level fund of fund investing in specialised private funders (Multiple countries)

The European Investment Fund’s (EIF) Social Impact Accelerator(SIA)is the first pan-European publicprivate partnership addressing the growing need for availability of equity finance to support social enterprises. SIA is a first step in the EIB Group’s (European Investment Bank and EIF) strategy to pioneer the impact investing space, responding to the wider EU policy aim of establishing a sustainable funding market for social entrepreneurship in Europe. This segment of the business world is becoming increasingly instrumental in promoting social inclusion, providing alternative sources of employment for marginalised social groups and contributing to economic growth. Hence the importance of SIA’s aim to build up the existing market infrastructure for social impact investing in such a way that this emerging asset class is placed on a path to long-term sustainability.

The size of the SIA is EUR 243 million, combining resources from the EIB Group and external investors, including Credit Cooperatif, Deutsche Bank, the Finnish group SITRA and the Bulgarian Development Bank (BDB). SIA operates as a fund-of-funds managed by EIF and invests in social impact funds which strategically target social enterprises across Europe. In the context of the SIA, “a social enterprise shall be a self-sustainable SME [small or medium enterprise] whose business model serves to achieve a social impact by providing an entrepreneurial solution to a societal issue based on a scalable approach, and shall have a measurable impact”.

4.5. Policy-makers actively reach out to mainstream funders to raise awareness about social enterprises.

We invite you to consider the degree to which public support is provided in order to raise awareness about social enterprises among mainstream funders. Often mainstream funders have limited understanding about social enterprises and their potential as investment opportunities, or they lack the skills to undertake this type of investments. Are there initiatives in your territory that help mainstream funders better understand and learn how to fund social enterprises?


Why is it important?

Mainstream finance providers often lack awareness about social enterprises as an investment opportunity, sometimes due to the hybrid nature of social enterprises (double or sometimes triple bottom line). Incentives and perceived risk in relation to investment in social enterprises are often misaligned, meaning that mainstream private investors are expected to take on a high levels of risk, with limited financial prospects. To enhance investment in social enterprises, policy-makers at national level can work with financial service regulators and professional bodies to introduce new, or adapt existing, competency frameworks for financial advisers and fund managers to cover social and sociallyoriented investments. In addition, policy makers can support the promotion and awareness-raising efforts among mainstream funders regarding the various ways to finance social enterprises. For instance, they could present examples of adapted credit provision conditions used for social enterprises by for example cooperative or community banks, including longer repayment periods or removed collateral requirements. Another possibility is to organise awards for social enterprise financing or engage in other types of awareness-raising campaigns to disseminate good practices. Lastly, within the EU, it would useful to increase access and awareness among mainstream funders about existing guidance material and/or capacity building sessions regarding available EU instruments supporting social enterprises.


In order to score high, in your context:

  • Good practices of social enterprise financing are collected from the mainstream funding community.
  • Awards and other types of dissemination activities about good practices in social enterprise financing are conducted.
  • Trainings and guidance are available to financial institutions to build capacity on how to finance social enterprises.
  • Guidance to finance providers on how to access EU instruments supporting social enterprise is available.
4.6. Public funds are leveraged to fund both social enterprises directly and through specialised intermediaries.

We invite you to consider the extent to which public funds are used to support social enterprise development. Do social enterprises receive public financial support? To what degree are public funds channelled for the creation of intermediaries or financial actors, such as seed funds or social impact investment funds, which can respond to the needs of social enterprises? Are guarantee schemes being used in your territory?


Why is it important?

Public funding in this context, referring to finance rather than procurement of products or services from social enterprises (covered in the guidance note on access to markets), is often difficult to channel directly to social enterprises for different reasons. One is that policy officers that administer public funds may not always perceive social enterprises as an eligible funding option. They may also lack the competence, skills, and relevant networks to engage directly in social enterprise financing. Therefore, to enable public funding for social enterprises, such as through project grants and financing schemes that combine grants, loans, guarantees and other financial instruments, there is need to build capacity and implement change at all levels of government.

Policy-makers should also consider how they can best support specialised intermediaries who have already developed the required expertise to finance social enterprises, including through funds, project grants, guarantee schemes that de-risk private financing, and hybrid schemes supporting social enterprise development. Subsidies and public investment can also be used to encourage the creation of seed funds that focus on social enterprise development and on social impact investment funds with a patient capital approach. A variety of EU funds and programmes can be actively used in this context (see the good practice example below).


In order to score high, in your context:

  • Social enterprises benefit from public grants supporting specific projects.
  • Publicly supported financing schemes that combine grants, loans, guarantees and other financial instruments are in place.
  • Financial intermediaries benefit from public guarantee schemes to provide funding to social enterprises.


Good practice example

The EU Programme for Employment and Social Innovation (EaSI) Guarantee Instrument (Multiple countries)

The EaSI Guarantee Instrument is funded from the European Commission’s EaSI Programme and is specifically dedicated to microfinance and social entrepreneurship. One of its key objectives is to increase the availability of and access to finance for vulnerable groups wishing to launch their own enterprises, micro-enterprises and social enterprises, both in their start-up and growth phases. EIF does not provide financing directly to micro-entrepreneurs or social enterprises. Through the EaSI Guarantee Instrument, the EIF offers guarantees and counter-guarantees to financial intermediaries, providing them with a partial credit risk protection for newly originated loans given to eligible beneficiaries. Intermediaries are selected though an application process following a call for expression of interest and a due diligence process. Once selected by EIF, these partners act as EaSI financial intermediaries and start originating loans to eligible beneficiaries within the agreed availability period. Thanks to the risk-sharing mechanism between the financial intermediaries and the European Commission, the EaSI Guarantee Instrument enables selected microcredit providers and social enterprise finance providers to expand their outreach to underserved micro- and social enterprises, facilitating access to finance for target groups who have difficulties in accessing the conventional credit market.