Survival or Establishment Stage: Once initial seed capital is drying up and no profit has yet been earned, the challenge for a social enterprise will be to expand the customer base and increase the market penetration while preserving capital. In order to increase access to more equity capital, social enterprises in an establishment stage can consider applying for a Program Related or Mission Related Investment from Mission Investors.
Growth or Expansion Stage: Once they have hit or surpassed financial break-even, the social enterprise may be able to access debt capital and to establish a credit history. Socially motivated lenders may be able to provide flexible or subordinate debt to a social enterprise. It is crucial to wait until the social enterprise is beginning to turn a profit before they are ready to support debt payments. The “five Cs of credit” lenders assess are character, cash flow, capacity, context and collateral. Collateral is often the most difficult for the social enterprise, as it requires a commitment of an asset, which could include revenue or grant receivables.
Mature Stage: Once a social enterprise is a successful business, the challenge is to remain competitive as new players enter the market. Success is a sign to other entrepreneurs that there is fertile ground for business opportunities and social good to do. Social enterprises must stay ahead by continually improving the efficiency of their operations and making sure thier product is ahead of the pack. At this point in financing, debt capital is likely to be preferred. However, working capital (such as cash into operating assets, inventory or accounts receivable) needs to be managed to avoid a cash crunch.
*Social Enterprise Alliance. Succeeding at Social Enterprise. Jossey-Bass, 2010. Print.
