Power to Change published Uncharted Investment, a research working paper that explored the sources of finance for community business. That work pointed towards a number of unexpected or previously underestimated sources, including lease finance, crowdfunding, equity finance even credit cards and bank account overdrafts featured as part of the overall picture. Local authority lending was one of the sources of finance identified by the research, and this piqued the interest of the audience at a roundtable event we held to discuss the working paper findings.

To probe this further, we commissioned Social Finance to explore the extent to which local authorities were borrowing from the public purse in order to lend to community businesses or social enterprises. This working paper draws together their findings and reflections on the future potential of this funding source.

Businesses often require an injection of capital to grow – be it a move to a larger space, to hire more employees, or to upgrade equipment. For smaller businesses, accessing capital can be challenging given their smaller operating margins, or limited assets to use as security. Many small business owners turn first to friends and family. Community businesses, of which a vast majority are small, are no different. Helping them thrive is critical because they play a crucial role in making places better. They make neighbourhoods better places to live in, they provide economic opportunities in deprived areas serving local needs, improve community cohesion, and empower local communities to make positive change.

But what do we mean when we say community business? Power to Change (Hull et al., 2016) has defined the four key features of a community business as: 

• Locally rooted: They are rooted in a particular geographical place and respond to its needs. For example, that could be high levels of urban deprivation or rural isolation.
• Trading for the benefit of the local community: They are businesses. Their income comes from things like renting out space in their buildings, trading as cafés, selling produce they grow or generating energy.
• Accountable to the local community: They are accountable to local people, for example through a community shares offer that creates members who have a voice in the business’s direction. Broad community impact:
• They benefit and impact their local community as a whole. They often morph into the hub of a neighbourhood, where all types of local groups gather, for example to access broadband or get training in vital life skills. 

Community businesses can take on many forms, from community shops, to local venues, housing associations, or even local community transport companies. One thing they all have in common is that they play a crucial role in community cohesion founded out of passion for community improvement. 

Their leaders, volunteers, and staff are deeply embedded in their locality. Not only does this mean they are well-placed to address their community’s needs, but also that they are able to tap into local sources of knowledge, expertise and funding. 

Access to growth finance is a significant barrier for community businesses. Grants, loans, or equity can be the difference between sustainability or a hand-to-mouth existence that inhibits longer-term, strategic decision making and social impact. Investing In Localism: How Local Authorities Can Provide Good Finance For Community Business 7 Power to Change While local development agencies and some specialist supporters, particularly for heritage projects, provide grants there appears to be demand for more sustained and strategic support, such as lending to community businesses