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Draft Please do not quote or cite without author permission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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