Entrepreneurship | How to finance a social impact business? Discover six alternatives here | RMMN | ECONOMY

According to the recent study “Entrepreneurship in times of inflation”, carried out by Ipsos, access to finance represents the main obstacle to starting a business in Peru, followed by the country’s economy, the knowledge required and interest rates.

Despite this, 47% of respondents say they have started a business in recent years, driven by the coronavirus pandemic and 52% say they are likely to do so in the near future.

Along the same lines, it is important to point out that social enterprises have become relevant in recent years. “Within this entrepreneurial ecosystem are those who use market mechanisms not only to obtain profits, but also to generate sustainable and scalable social impact, i.e. social enterprises.says Ingrid Claudet, General Manager of the Wiese Foundation.

Alternatives for social enterprises

In this note, we tell you about six available alternatives that the Wiese Foundation indicates to social enterprises that wish to obtain funding aimed at stabilizing and developing their activity.

  1. Angel Investors: They are natural persons who provide seed capital and mentorship to businesses, and are also responsible for facilitating contacts and advice, normally in exchange for a percentage stake in the business.
  2. Incubators and accelerators: It aims to foster the creation and scale of early stage businesses, provide them with workspaces, mentoring sessions and, in some cases, connect them with investors in exchange , generally a share in the company and/or its future profits. . . They also provide their acceleration services to third parties in exchange for financial compensation.
  3. Contest or prize: Created by public or private entities. The award consists of the disbursement of a non-refundable fund after a process of appeal and evaluation of applications. Some require an entrepreneurship quid pro quo, while others are more geared towards making entrepreneurs visible and connecting with the local entrepreneurial ecosystem.
  4. specialized bank: Banking entities specializing in micro and small businesses or having financial products (lines of credit) intended for them. They usually require some type of collateral and credit history and charge market interest rates.
  5. Impact investment funds: Specialized private entities that raise patient capital and finance, usually at market rates, social enterprises that meet certain pre-established risk and impact criteria. The presence of these institutions in Peru is still nascent.
  6. Social innovation programs: They are created and funded by companies, foundations or other non-profit entities, as part of their CSR or institutional purpose. They combine appeal processes, comprehensive assessment, funding and acceleration services performed directly and/or through third parties.

The financing schemes that these programs offer to beneficiary social enterprises generally have more flexible and advantageous conditions than those available on the financial market (formal and informal); and the training and professional support they provide as well as the funding are free, against formal commitments of growth and impact.

In addition, these institutions connect companies with other related entities and professionals, thus strengthening their networks of professional contacts. There are still very few social innovation programs in the country, but the world of business and philanthropy is increasingly interested in this more sustainable way of helping.

Entrepreneur Fund

Currently, the aforementioned foundation is appealing for the second edition of the aforementioned program called “Entrepreneur Fund”, through which it will finance S/ 150,000 to Peruvian social enterprises, also providing them with training and professional support for 18 months.

To be eligible, interested companies must meet the following requirements:

  • Be private entities incorporated in Peru.
  • Declare annual sales of at least S/25,000.
  • Emphasize self-reliance through commercial activity (selling).
  • Demonstrate that they are able to contribute to solving a social or environmental problem that affects a vulnerable community.

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