Authors: Baron Li and Eldric Lem
This summer, the LSESU Microfinance Research Team spoke to entrepreneurs across the UK to learn more about how financial inclusion has been instrumental in their growth as well as pursuit of social impact goals. During the interviews, founders of successful social enterprises shared about their inspirations and humble beginnings; the insights they provided have reinforced our belief that inclusive financing is key in empowering socially impactful businesses.
Do read on to find out more about Spark:York and HQ CAN, two highly impactful businesses that have benefitted and grown from their experience with Microfinance lending.
Interview with Spark:York
The first entrepreneur we interviewed was Tom McKenzie, the founder of Spark:York. Spark:York consists of 23 upcycled shipping containers, arranged over two levels, housing a complementary tenant mix of entrepreneurs from different sectors, with the curation of retail, food and drink, workspace and arts and culture.
Q: How did Spark:York begin, and how has the business grown since then?
There were originally three of us that worked on the concept. Spark:York is a temporary project; it is built from modular construction format using containers, which means it will never be here forever. The goal was to bring a spark of life to York, which was the inspiration behind the name. We wanted to provide opportunities for entrepreneurs, charities, social enterprises, community groups with hub in the city center that was affordable or even free; it was inspired by container parks around the world, such as those in Copenhagen and Amsterdam. We felt that this method of construction is affordable, quick and versatile.
Besides the traditional tenant spaces, we have two large spaces for communities. We offer spaces for young, small businesses and use the rent to subsidize spaces for social enterprises and charities. Spark:York is a community interest company (CIC), so all profits are locked within the business and have to be reinvested into the business or the community.
Q: Given your unique business model, what are some of the biggest challenges you have faced so far in your journey?
We choose to work with many startups, and it is well-known that 9 out of 10 new businesses fail. We do not rent to well-established businesses that sign 5-year leases, most leases that we do are on a 12-month period. We pitch our model to help people that are starting something new, so there is always an increased risk. There is a lot of movement and change, which is great for the customers as there is always something new at Spark:York. From a management point of view, it keeps us on our toes.
Q: What are the main metrics you have used to measure the social impact Spark:York has created?
We have had some great success stories. Some of our talents have grown and gone to open permanent premises. They test their product in our risk reduced temporary environment, then take their concept to the wider market. In terms of outcome, we have had 700 hours of community events and more than 100 community groups that regularly use the spaces. Our tenants achieved an accumulated financial impact of £4 million in two years.
Often, some social groups who have been moved out of their offices due to funding cuts will approach us looking for a space to go. One recent example is the York Older People Assembly, who moved in recently. We also have a Zero Waste food market that aims to reduce food waste by donating groceries that have been discarded by supermarkets to low-income families. We also have an advisory board to codify our values and hold us to account.
Q: How has your experience with BEF (Business Enterprise Finance), and other financing institutions been like? It has been absolutely key to our growth. One of BEF’s business objectives is to help startups flourish in the region. Andy was our investment manager. When we were finalizing our ideas, it felt like he was part of our team. He worked closely with us to tackle the obstacles we faced. This personal and affable approach was something that other organizations do not always offer. He also helped us with the application process and clarified any points of confusion that we had. Some of the businesses we host have also taken loans from BEF through our recommendation, so that they can climb the ladders of progression and growth too.
Our business model aligns with the goals of organizations like BEF, Northern Powerhouse and Key Fund. As the loans we took were completely unsecured, the Enterprise Finance Guarantee by the government was crucial as it helped provides the lender with a government-backed guarantee of up to 75% against the outstanding facility balance.
Q: What are the future plans for Spark:York?
Coming out of the COVID-19 pandemic, many authorities realized many of the systemic problems in their city centers. We are looking into providing multiple startup spaces in the North of England. In the short term, we are looking at similar sites in areas like Leeds and Manchester. By understanding what the community needs, we can bring additional value by customizing a solution for the localized problems.
Interview with HQ Creative Arts Network (HQ CAN)
The second entrepreneur we interviewed was Yasin El Ashrafi, the founder of a recording studio and music education business who was expelled from school at 15 has been named one of the most exceptional social entrepreneurs in the UK. The business, a social enterprise, generates its own income streams through commercial studio hire, mastering and artist development services, and gives participants a way of making an income and a sense of purpose, with their activities often leading to employment.
Q: Can you share more about how you started HQ CAN and how the business has grown since then?
I first started community work 10 years ago at a different community interest company and started doing weekly projects at community centers at deprived neighborhoods for a year. After that I started a commercial recording studio, did community projects outside of that over the years and worked with other music artists.
About 3 and a half years ago, I decided to start HQ CAN, another community interest company with a different group of people, young people who work with music. The aim was to give people who cannot afford to pay for services free studio time, free tuition, and free mentoring time. We get the funding from big lottery and other sources so that people can access our services without paying
Q: Could you elaborate further on your funding?
Big Lottery fund is our main funder. Other funds out there include the Arts Council or Leicestershire and Rutland Community Foundation; it is important to find the funding that fits the criteria for what we want to do and their aims too.
Q: Was funding an issue when you started out?
Yes, definitely. We started out with nothing. I started with an idea and took it to the local council. They liked the idea and provided us with 1,500 pounds, and we had to complete a teaching qualification to get things to work. Funding started to become a bigger issue as we grew, although we did provide commercial services that helps bring in finance when we need to.
Q: Could you tell me more about the Key Fund Loan you took?
The only loan I have ever taken was from the Key Fund Loan for 50,000 pounds. That’s because it was not just for a project but more about scaling up – scaling up the business, the establishment, the studios and I also brought in a general manager; we used the funds to add a second studio and pay for the general manager’s wages for a year. He did the day to day running, business plans or even creating artwork or managing bookings for artists and made sure the business was running even when I am not there.
Q: Key Fund usually provides advice to businesses it lends money to, how was it like for you?
Not really, we did not really need any help or advice and we knew exactly what we wanted and how we wanted to do it. They did help with advice on how to fill the application.
Q: What was your experience like with Key Fund throughout the application process and after?
To be honest it was quite straightforward, altogether it took roughly 2 months. 1 months to get the business plan together and application done. The business plan was a big plan which took about 4000 words and took a lot of time to complete but it was overall a smooth process. There was a whole finance section where we had to show our income flow, actual spending and we really had to get our accounts together.
Q: How do you financially support the social work you do for your beneficiaries?
We have two sides to the business, one side we get funding so that people can get free stuff. We sell studio time, and other things related to music, any service we will sell to customers, so that we may help people however we can for free.
Q: Do you measure the social impact of your business?
We do measure it based on the outcome – how many of our beneficiaries go on to further education or work, and how many businesses we help set up. We stay with people to see where they go afterwards, but we do not go into the in-depth details of pricing etc that some others do.
Q: Do you think other businesses have difficulties accessing funds?
Yes, I think so, especially for new businesses that run for less than three years. If your turnover is low, it can be hard to get finance. Lenders sometimes require personal guarantees from people like directors, but you will not want the loans to be personally liable. Many small businesses fear going in debt because you always must pay it back with interest. Most businesses only borrow if they need to.
Q: How has COVID-19 affected business?
The commercial side took a massive hit as we had to completely close the whole building for quite a long time. We had no studio bookings or music events and we lost a lot of money on the commercial side. On the funding side, we managed to get some grants and quite a bit of funding which has allowed us to do remote working, providing people with microphone and computers so that they may work from home. It has been a really weird time – one side of the business took a really large hit and one side is doing quite well.