Can social investment funds create new ways of working?

Thursday, 4 January 2018 - 9:59am

We are now inviting applications to Round 2 of the fund. The closing date is the 16 February 2018. If you are interested in applying for the fund, please contact Jaishree Mistry as soon as possible.

Glass piggy bank

Our Social Investment Fund is now up and running and since the close of Round 1 on 30 September 2017, I have been busy travelling around the country visiting applicants to learn more about their work and plans for use of social investment. The first round ended with a successful Investment Committee meeting last month and I will soon be able to share details of the investments that were agreed.

Having spent many years in responsible finance, I am only too aware of the challenges faced by charities and social enterprises due to the changes in the funding environment we have seen over the last few years.

With grant finance becoming less and less certain, social purpose organisations are having to consider new ways of ensuring they can continue to provide essential support to the most vulnerable members of our community. Although a loan cannot be considered a replacement for grant funding, as it will eventually have to be repaid, it can be part of an organisation’s total funding package, and be used as a tool to unlock other funding, to transform or introduce new ways of working.

Many small to medium-sized charities do not consider repayable finance, i.e. loans, because they do not have any assets they can offer as security. While it is true that many traditional lenders ask for security in the form of an asset or trustee’s/director’s guarantee, this is not the case with specialist social investors. Social investors, unlike banks, are willing to support what may be perceived as higher risk loans, in order generate positive social impact.

Charity trustees and senior management are becoming more entrepreneurial in their outlook, as they explore ways to diversify income streams so as not to be reliant on a single source of revenue. A small-unsecured loan could be used to expand or launch a new project without having to deplete a charity’s reserves. That said, the social investment will only be forthcoming if the investor is convinced that the organisation’s plans and financial forecasts show that the new project will generate sufficient income to repay the loan and add to the long-term stability of the borrower, as well as lead to positive social impact. An added benefit of the process of applying for social investment is that it can lead to improvement in governance, internal management and financial discipline.

A small-unsecured loan can be a more straightforward, flexible form of finance when compared to a grant with strict conditions and onerous reporting requirements. Such loans can be used to strengthen internal infrastructure e.g. financial/I.T. systems or implement more robust social impact reporting procedures, which will place an organisation in a better position to apply for other sources of grant or contract income. Contracts tend to be paid in arrears and the loan could be used to provide the necessary working capital needed to cover operational costs before payment is received.

We discussed social investment with our members over the last two years, before deciding that the best way to support the sector further is through our own social investment fund. We want to work with you to explore ways in which social investment can be used to create lasting change by strengthening the sector and unlocking potential.

Homeless link’s social investment fund officially launched on 19 June 2017. We will make unsecured investments of between £25,000 to £150,000, to help people develop new ideas. For more information and to register an enquiry please visit our social investment page.