How to… finance social enterprise and small business

The Ulster Community Investment Trust is plugging the gap as government retreats and banks withdraw finance. Trudi Dunbar explains

The social economy in Northern Ireland is an increasingly well-established and diverse sector operating in almost every industry, from health and social care to renewable energy. Social enterprises often work in communities where unemployment is two or three times the national average and they are important drivers in creating opportunities and training for those who are often the most marginalised and disadvantaged in society.

Like other organisations, social enterprises require finance to grow and expand their services. Grants and donations provide an important source of funds but loan finance also has an increasing role to play, helping organisations to put their finances on a more sustainable footing.

Over the last ten years, Ulster Community Investment Trust (UCIT) has played a central role in supporting the community, voluntary and social economy sectors in Northern Ireland.

Established in 1995 in response to decreasing grant support from government and to address the difficulties experienced by community organisations in accessing commercial loan facilities due to perceived risk, the organisation now operates as the leading provider of loan finance and support to the social economy sector on the island of Ireland. UCIT aims to reach those community organisations and social enterprises that banks will not readily assist and, in the process, enable them to achieve ambitions and objectives they wouldn’t otherwise be able to do.  As loans are repaid, the funds are re-cycled to support others.

UCIT is set up as an Industrial and Provident Society, limited by shares. All profits generated are re-invested in the activities of the trust to provide finance to community-owned organisations. The trust was fortunate to have the support of government and the International Fund for Ireland, who provided both seed capital amounting to £8.7m and the transfer of an existing loan portfolio on start up.

Case Study: Sticky Fingers Early Years Arts (pictured) is a children’s organisation based in Newry, County Down, which devises and delivers high quality arts events and encourages participation in the arts by children, families, carers, teachers and childcare professionals. In September 2012, Sticky Fingers launched a new social enterprise, The Children’s Art House. UCIT provided the organisation with a loan to purchase equipment including furniture, fittings and stock for this new venture.

Since the draw down of UCIT’s first loan in 2001, it has assisted over 300 community organisations, charities and social enterprises, providing loan finance in excess of £45m. Last year alone, the trust approved loans of over £5m to 66 borrowers across a wide cross section of activities. In many instances these projects would not have been possible without the supportive and flexible approach adopted by UCIT in its lending.

From the outset however, UCIT was established to be much more than simply a provider of financial investment to the community and social economy sectors. The company is also committed to providing mentoring support, with a focus on improving the efficiency and professionalism of the enterprises operating within the sector. Since 2003, over 220 organisations in both Northern Ireland and the border counties of Ireland have benefited from our programmes of business support and training. In addition, UCIT clients receive annual visits which involve reviewing loan performance. This close client relationship has ensured that UCIT’s loan loss experience has been very low. The portfolio management aspect of UCIT’s work is critically important, as it brings added value to the client relationship and offers guidance and assistance to loan holders facing difficult trading conditions.

The organisation has always emphasized the importance of generating a clear social return as well as a financial return when investing in social enterprises. UCIT’s clients are at the forefront of community-led economic regeneration in areas of high deprivation and disadvantage and addressing problems associated with rural isolation, unemployment,  social exclusion, community division and the legacy of conflict.

Extending support to small business
Global economic pressures have brought difficult trading conditions for the third sector in Ireland. They have also provided substantial evidence of the need for organisations like UCIT to play their part in enabling access to finance for social enterprises. During this period UCIT has made good lending decisions and invested wisely but ethically. Prudent decision-making, close attention on management of costs and working with partners to maximise impact have left UCIT in a strong position to weather the economic downturn.

However to grow our business and expand in line with our strategy and provide for the future needs of the sector we continue to pursue new sources of capital. The UCIT board is active in exploring further opportunities in this regard and continues to engage with a number of potential funding sources and potential joint venture partners.

During 2007, UCIT applied for accreditation from the Social Finance Foundation in the Republic of Ireland to access funds for investment south of the border. The Irish government approved the establishment of the Social Finance Foundation in 2006 with seed capital funding of €25m provided by the banking sector through its representative body, the Irish Banking Federation. The aim of the Foundation is to wholesale this finance to specialist social finance providers such as UCIT and we are delighted to be able to draw on these funds to support our expansion plans.

Case study: Torrent Valley Initiative (pictured) was set up by a group of community volunteers to promote business enterprise in the rural areas of Donaghmore and Castlecaulfield in County Tyrone. UCIT assisted the company with a loan to cover the costs involved with the completion of a £2.4m ‘community hub’ comprising sporting, arts, employment and community facilities.

During 2012/13, UCIT applied for and was granted FCA approval to act as a fund manager and subsequently secured the contract to manage the Invest Northern Ireland (INI) £5m Small Business Loan Fund.  This enabled us to extend our activities into the small business sector and in the process contribute to the creation and protection of employment levels in Northern Ireland.

The NI Small Business Loan Fund (NISBLF) provides loans up to £50,000 to small businesses and individuals who are unable to access funding through traditional sources.  To date, over £1.3m has been loaned to over 60 small businesses in Northern Ireland.

Harry McDaid, chief executive of UCIT, explains: ‘This represents an important strategic diversification by UCIT into funds management and opens opportunities to assist in the creation of employment in the private sector complementing our work in the social economy sector. This fund management activity is now a very important component of our business and we will pursue other similar opportunities in the year ahead.  Management of the fund allows us to develop new skills and competencies in our business and in the process differentiate us from our competitors’.

• Further information can be obtained from the Trust’s website