Social enterprises create a taxonomy problem for grants programmes. They are not charities — they generate revenue through trading and may be legally structured as limited companies. They are not conventional businesses — their primary purpose is social or environmental, and financial return is secondary. Most grants programmes are designed for one or the other.
The result is that social enterprises often find themselves either ineligible for grants programmes they could benefit from, or funded through programmes that do not adequately reflect their hybrid nature. Funders who want to support social enterprise activity either adapt existing programmes or create dedicated social enterprise funding streams.
The difficulty starts with definition. "Social enterprise" is not a legal structure — it is a purpose statement. It can describe:
Each of these has different legal accountability, different eligibility for different types of grants, and different accountability requirements. A programme that funds "social enterprises" without being clear about which types of entity it is addressing will face eligibility disputes at the assessment stage.
Funders that specifically support social enterprise typically have one of several objectives:
Market development. Growing the social enterprise sector as an alternative model of economic organisation — funding social enterprises that would otherwise be excluded from charitable grant programmes, on the basis that they represent a more sustainable approach to social outcomes.
Social return on investment. Directing funding to organisations that can demonstrate measurable social value for each dollar of investment. Social enterprises that generate both revenue and social value may represent better return on funding than pure charities in some contexts.
Employment and economic development. Social enterprises that employ people with barriers to employment — long-term unemployed, people with disabilities, former prisoners — may receive grants from employment-focused funders alongside or instead of social services funders.
Ecosystem building. Supporting social enterprise through capacity building, business development support, peer learning, and shared infrastructure rather than direct grants to individual enterprises.
Assessment of social enterprise grant applications requires evaluating both the social purpose and the business model. The assessment framework needs to address:
Social impact. What social or environmental outcomes does the enterprise produce? What evidence is there that the model works? How are social outcomes measured? The assessment of social purpose is similar to assessing a charitable grant.
Business viability. Is the trading model sustainable? Is there genuine market demand for what the enterprise produces? Is the revenue model realistic? Are the assumptions in the financial projections credible? The assessment of business viability is similar to assessing a business grant application — it requires financial literacy that many grants assessment panels do not have.
The relationship between trading and social purpose. The distinguishing feature of a social enterprise is that the trading activity is the mechanism for social impact, not just a fundraising activity. An assessor needs to understand whether the two are genuinely integrated (the trading is how the social purpose is achieved) or whether the enterprise is a business that donates some of its profits (less interesting from a social enterprise perspective).
Additionality. Would the enterprise develop without the grant? A grant to a social enterprise that has a viable business model and access to commercial lending is less impactful than one to an early-stage enterprise that cannot access commercial finance because its social purpose makes it a non-standard borrower. Additionality is a concept from impact investment that is equally relevant to social enterprise grants.
Standard grant accountability (financial reporting, milestone achievement) applies to social enterprise grants. But social enterprise accountability also typically includes:
Social impact reporting. What social outcomes were produced in the grant period? What metrics were used to measure them? How did the enterprise's social impact relate to the funded activity?
Trading performance. Is the enterprise trading as projected? Is revenue growing toward sustainability? Are the assumptions in the funded business plan holding?
Mission fidelity. Is the enterprise maintaining its social purpose as it grows? Some social enterprises face pressure to prioritise commercial performance at the expense of their social mission as they scale. Accountability frameworks that track mission fidelity alongside financial performance help funders understand whether the organisation they funded still reflects what they intended to support.
Some funders of social enterprise combine grants with repayable finance — loans at concessional interest rates, quasi-equity arrangements that convert to grants if specific impact targets are achieved, or hybrid instruments that reflect both the charitable and commercial nature of the enterprise.
These hybrid instruments require grants administration capabilities that most grants management systems do not support out of the box: tracking of loan repayment schedules, monitoring of impact targets that trigger conversion, integration with financial management for concessional rate calculations.
For funders operating mixed grant/loan portfolios, systems designed specifically for social investment — or general-purpose grants management systems that can be configured for complex post-award tracking — are more appropriate than standard grant administration tools.
For funders running social enterprise grant or investment programmes, the government grants management page covers public sector social enterprise funding, while the community foundations page is relevant for philanthropic social enterprise funders. To discuss how to design a social enterprise funding programme in Tahua.
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