Pandemic pressure proves too much for many social businesses

There are many stories of well-known and otherwise profitable businesses running into terminal difficulties because of the pandemic and lockdown.


Pandemic pressure proves too much for many social businesses

Social Enterprises in the UK are struggling

But one under-reported sector is suffering just as much as the bigger names, and possibly more because of their unique structure and mission. 

 

We’re talking about Social Enterprises – community run businesses that operate to provide services and social good rather than express and extensive profits.  

 

There are currently over 100,000 of these operating all over the UK and collectively employ more than two million people, so these are not a niche branch of the economy – they are fundamental to the communities and groups they serve. 

 

Many have been caught in a Covid-19 crunch situation themselves as demand for their services such as helping newly-unemployed people, recently released prisoners, the disabled and SEND groups and senior citizens has exploded. 

 

But their own funding options and financial support have been narrowed, delayed or in some cases even stopped altogether as sponsors have closed and personal donations have dried up. 

 

Loophole in the system

 

They’ve also found themselves in an unfortunate loophole in the government’s Coronavirus support systems with one example being access to the Bounce Back Loan (BBL) scheme.

 

While designed to help viable businesses cope with temporary income drops caused by the pandemic and lockdown, several social enterprises have been unable to access the scheme because the ethical banks they tend to use are not accredited and therefore cannot lend funds under the scheme.

 

It would be difficult for them to open new accounts with accredited banks and meet the criteria quickly so instead of being able to access funds of up to £50,000, some are not being able to get any help at all. 

 

Others have turned to other forms of funding such as Coronavirus Business Interruption Loans (CBILs) but these come with a higher interest rate and involve borrowing a higher amount.

 

While there have been other sources of funding made available for Social Enterprises such as the Resilience and Recovery Loan Fund worth £29 million and the Social Enterprise Support Fund worth £19 million – they have proved insufficient to meet demand. 

 

Social Enterprise UK, the representative membership body for social enterprises, estimates that one in 50 have permanently closed during the pandemic. 

 

Andrew O’Brien, director of external affairs at Social Enterprise UK, said: “A lot of social enterprises are desperate to get back to helping people and they are not going to be able to do that if they can’t get access to the financing they need.”

 

What are social enterprises?

 

Social Enterprises are constructed differently from other businesses in several ways but the most significant difference is that they will be a Limited By Guarantee (LBG) company. 

 

An LBG company will most likely be a non-profit organisation along the lines of a social club, a sports club, housing tenants association or a student union. 

 

Depending on their function, some decide to become a Community Interest Company (CIC) instead which prevents any profits from being extracted and instead see them being reinvested in the cause that the company promotes and supports. 

 

Another big difference is that while LBG and CIC companies don’t have shareholders, they do have members who will act as guarantors if the event that the company is wound up.

 

Board members of CICs are allowed to be remunerated for their work but this must be done through staff payroll and cannot be through paid dividends. 

 

Sadly, like any other business, LBGs and CICs can face winding-up and liquidation if they’re unable to pay their debts as and when they fall due.

 

The process of winding up an LBG or CIC can be slightly more complicated for several reasons including when it comes to holding the essential meetings required to wind up the organisation. 

 

This is just one more area where we give our professional, specialist help.

 

If you’re a social business caught between trying to help your primary audiences and make ends meet then you should get in touch with us

 

We can arrange a free virtual initial consultation with one of our expert advisors to talk through your options. 

 

Whether you’re working hard to keep the lights on and want some extra ideas or if you’ve already made the decision to close your doors and need to close with a minimum of fuss and stress – we’ll be able to help the helpers.

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