Are you operating a social purpose business?

Social finance is an option to consider if you are a social entrepreneur with a business that makes positive social or environmental impacts. This type of enterprise is often referred to as a ‘social purpose business’.

More than corporate social responsibility or a focused promotional activity, the social purpose business (SPB) focuses sustained attention on each bottom line, while recognizing that without profit, it will likely not survive to meet its other important goals.

Are you a social entrepreneur?

Social entrepreneurs are people who are highly motivated to make a positive change or solve a difficult problem by using a business model to achieve a social or environmental impact.

For instance, Charles Takawira worked in a hospital and witnessed waste of unused medical supplies and equipment. He recognized an opportunity to transfer the medical equipment to hospitals in Zimbabwe, Sierra Leone, and Malawi. Charles started Green Healthcare Link, which works with local hospitals to divert surplus medical equipment from landfills to refurbishment centres that train and employ people to recover the medical equipment. He also started the Sponsor-a-Container program, to engage businesses to offset the cost of transporting the medical equipment by sponsoring a cargo container. The equipment is then sold at a reduced cost to public health agencies that redistribute it to local hospitals throughout Africa. Charles attended the UK School for Social Entrepreneurs to help develop his business plan.

Social entrepreneurs like Charles notice a problem, then recognize an opportunity to address the issue with an innovative idea. If you are a social entrepreneur and want to get connected, check out UnLtdWorld.

Capital requirements

Like traditional businesses, SPB’s often require capital for physical plant or infrastructure needs, project financing, and working capital. Like most start-up companies, some social entrepreneurs often use their personal assets, borrow from friends or family, or apply for a bank loan to get the ball rolling. Some even use their credit cards: not the lowest interest option available!

Sometimes, SPB’s require additional start-up supports when compared to their more traditional cousins. For example, a business whose social bottom line focuses on creating employment for at-risk youth might have an additional expense line that covers additional training and social supports.

Additionally, more of these inexperienced and challenged employees might be required to do the same work as a smaller mainstream work team – the result is higher-than-average payroll costs. Likewise, taking an environmental example, there may be higher costs associated with implementing new technologies that support wind power than traditional energy sources.

Social finance is a perfect fit for SPB’s

The great news is that for an SPB, options are available when traditional financing methods are not enough. Because SPB’s add special value to communities by specifically tackling social and environmental challenges, additional financial supports exist. These form a core component of the social finance toolbox.

The Story of AutoShare

Toronto’s first car sharing company, AutoShare was launched in 1998 with a mixture of debt instruments. Its goal is to have one of its vehicles available within a five-minute walk of anywhere in the city; at every TTC station; and at the end of any given street in metropolitan Toronto.

AutoShare was initially financed with a combination of ongoing car leases against the founder’s personal assets, $100,000 in founder loans, and a $20,000 Toronto Atmospheric Fund loan. Because of its rapid movement towards profitability, AutoShare accessed an additional $25,000 in Business Development Bank of Canada (BDC) loans to further develop the company’s technology.

For fiscal years 2007, 2008, and 2009, the company experienced sales revenues of $3.2 million, $3.9 million and $4.5 million, respectively. But the story goes deeper than the financial bottom line...

AutoShare’s product offering has a strong and demonstrable impact on the environment. They are the only car sharing company in Toronto to offset the entirety of its CO₂ emissions through its partnership with Zerofootprint. According to AutoShare member surveys, 15 per cent of its membership sold a car after joining AutoShare, and 25 per cent decided not to purchase a car at all. They also report increased public transit and bicycle use among AutoShare’s urban residents.

AutoShare holds two main types of assets: cars and proprietary technology. The company has 220 cars in circulation with an average value of $15,000 each. These vehicles have been purchased on a lease, and, for the most part, require $5,000 in down payment. The company is also currently financing an additional $300,000 worth of technology upgrades through capital leasing and cash flow-backed financing.