Community businesses make a unique contribution to our economy and tackle some of society’s biggest challenges through a local lens, yet often struggle to navigate access to finance to start and scale, due to complexities and a lack of accessible options.
In Power to Change’s latest report ‘Financing the Future Economy’, we highlight several challenges and make recommendations to funders, local authorities and government to better support community businesses to develop sustainable models.
Enterprise grant-making: an innovation in resilience
In the report we highlight one innovation which is part of the funding landscape available to community businesses: the collaborative work to boost earned income, as part of the enterprise grant-making movement.
Community businesses in England have a total annual income of just under £1bn, and typically operate a hybrid business model to finance the development and delivery of services and facilities. Grants plus commercial and trading income are the two largest sources of income for community businesses, with 84% of Community Business Market survey respondents in 2022 reporting having obtained some income from grants, and 83% generating some income from trading.
While grant funding provides a welcome boost to the finances of community businesses and can be particularly important to their survival through uncertain times, there are many challenges associated with accessing and utilising it. Applying for grant funding is often highly competitive, and community businesses may expend significant time and energy on grant applications without any guarantee of success.
Enterprise grants help to create an entrepreneurial mindset and encourage financial sustainability among community businesses.
Innovations in enterprise grant-making are helping to address the risk of grant dependency by using funding conditions and incentives to encourage organisations to build their agency and capacity to earn their own income from trading. Enterprise grants help to create an entrepreneurial mindset and encourage financial sustainability among community businesses. Evidence from enterprise grant programmes suggests that this combined funding plus support approach enhances organisational survivability and skills development.
Benefits of enterprise grants
Match Trading, created by the School for Social Entrepreneurs (SSE) and part-funded by Power to Change through the Community Business Trade-Up strand, is one innovation in enterprise grant-making. Match Trading grants match increases in income from trading pound-for-pound, thereby incentivising trading activity and sustainable revenue. An evaluation of the Power to Change Trade-Up programme, which is a five-year, £6.5m support programme aimed at strengthening community businesses, showed that Match Trading grants increased income from trading as a proportion of total revenue, noting a 9.5% shift in ‘trading ratio’ credited to the Match Trading mechanism in the programme.
SSE’s analysis of Match Trading grants found that they increased trading income by an average of 29% in one year, versus 12% from traditional grants.
Potential to grow
A 2023 report by Social Spider found that there are a small number of current funds clearly identifiable as enterprise grant-making, totalling around £2.6m (from School for Social Entrepreneurs’ Match Trading, Access’s Enterprise Development Programme, and UnLtd’s Grow It fund). This could be set to grow in coming years, with a recent partnership between The Dulverton Trust, Power to Change and The National Lottery Community Fund injecting a further £700,000 into the sector in 2024. However, beyond this there are numerous examples of national funds – amounting to a further £22m – with a clear enterprise focus, as well as regional and local funds responding to specific enterprise needs. There is significant potential and demand for both types of funding to increase.
Policy recommendations
As part of our policy suggestions to both funders and the next government we make the following recommendations:
- Ensure grant funding supports community businesses to diversify their income streams and reduce grant dependency
- Enable greater equity in access to funding, and fund flexibly to help community businesses meet their needs
- Adopt a cross-governmental strategy for the social economy
- Use dormant assets to provide long-term, flexible investment in community business.
What’s next
This report is part of Power to Change’s work on financing the future economy and lays the groundwork for us to continue exploring the challenges and opportunities in financing community business. We hope that our partners – funders, social investors and all levels of government – will work with us to shape the finance and funding landscape to enable community business to thrive.
Get involved
Find out more about the Enterprise Grants Taskforce, including how other funders can get involved
