1 SOCIAL INVESTMENT IS A FORM OF INCOME FOR CHARITIES
Social investment is not a replacement for income as it will
eventually need to be repaid. Your organisation’s plan for growth
should consider a variety of funding sources to complement your
income and ensure you are not always reliant on a single source of
revenue.
2 LOANS ARE RISKY FOR CHARITIES
Loans are only risky if directors, trustees and others involved
in the decision-making do not carry out the due diligence involved.
Can we afford the upfront fees? Can we afford the monthly payments
now, and in a few years time?
Research suggests that many organisations actually benefit in
the long run from going through the process of taking out finance,
as it can lead to improvements in governance, internal management
structures and financial discipline.
3 SOCIAL INVESTMENT IS RIGID, AND OFFERS LITTLE FLEXIBILITY
Actually, social investment can be one of the most flexible
financing options available to charities. There are a variety of
ways to structure the loan, and many providers offer a completely
bespoke approach ensuring that the borrower’s needs are at the
heart of the process. For example, a deal could combine a number of
elements, such as an unsecured loan, a standby facility to manage
cash flow and a capital repayment holiday to assist in the short
term.
4 LOAN FINANCE IS UNAFFORDABLE
Whilst lending money to charities and not-for-profits may seem
like an anathema to some, for a lot of organisations it offers a
chance to borrow money at more favourable rates. Social investors,
unlike banks, are more willing to take on higher risks in order to
generate positive social impact.
You should speak to as many providers as possible in order to
find out which option best serves your needs.
5 IT IS COMPLEX AND DIFFICULT TO UNDERSTAND
There's a huge range of guidance out there to help organisations
uncover the potential of social investment. Guides produced by the
Big Lottery Fund and Big Society Capital offer a breakdown of the
various organisations who operate in this space and what they
offer.
Whilst there's been a lot of innovation in the market (for
instance the creation of Social Impact Bonds), the majority of
financing is made up of standard term loans. We produced a research
paper In Demand which talks about the
demand we see for financing from social organisations.
6 THE SOCIAL INVESTMENT SECTOR IS NEW
The social investment market as we know it today has been around
for at least 14 years, but some of the first pioneers in this area
were actually religious institutions – the Quaker and Methodist
churches can trace their involvement back to the 1700s!
7 IT'S ONLY SUITED TO LARGE ORGANISATIONS
From local community organisations to large UK-wide charities,
social finance could be of benefit to organisations with varying
degrees of resources. The beauty of the social investment market is
the diversity of the options available, allowing many more
organisations to access financial support without a large amount of
security.
8 THE INVESTMENT PROCESS IS BURDENSOME
Whilst social investment providers have both an ethical and
financial obligation to ensure that the necessary due diligence is
carried out, many providers do try and make the process as easy as
possible for applicants.
Paperless applications and dedicated investment experts will
help support applicants through every step of the process, often
writing the application on behalf of their clients, in order to
make the process as quick and smooth as possible.
9 THE MARKET IS FOCUSED IN LONDON
Too often the view of social investment is that it is too
London-centric with little capital available for other parts of the
UK. While it's true that the majority of money lent so far has been
concentrated in the South East, the emergence of regional funds
aims to correct the imbalance. Developments such as the SIB
Community Investment Fund and the growth of Key Fund across the
North East mean that social organisations based around the UK will
find it easier to tap into capital.
The growth of Local Economic Partnerships across the UK will
provide a further catalyst in the spread of capital available for
social organisations.
CAF
Venturesome has been financing social organisations for 13
years, making us one of the pioneers of the social investment
sector. To date we have lent over £35 million to allow hundreds of
social organisations to build capacity and resilience.
For more information contact the CAF Venturesome team by email at venturesome@cafonline.org or call
03000 123 000.