Social Investment
As competition for grant funding hots up, non-profit organisations such as charities, CIOs, CICs and Companies Limited by Guarantee are increasingly exploring the option of social investment loans to help them achieve their goals. But what is it? Why use it? And what do you need to do to access it? Who are social investors? All this, and more, below.
What is social investment?
Generally social investment is a loan (usually with interest) to an organisation that trades to achieve both social (including environmental) goals and financial resilience. Some social investors take security, some don’t. Any organisation which takes on a loan needs to have enough income to pay it back. Often, this means a trading income. Social investors will need to see enough financial information to give them confidence that repayments can be met. However, they might construct a loan what will help, such a long-term repayment schedule or an interest only period. So, it is always worth talking to the investor to see what can be done to achieve a successful outcome for both organisations.
Why use social investment?
Some organisations are put off by the idea of taking on a loan, often it is because it is an unknown situation. There are some significant advantages, though, which need to be factored into the thinking:
- The scale of funds available is larger than many grant makers
- The speed of decision making is often significantly quicker than grant makers, making planning easier and removing the will they/won’t they fund us jeopardy
- Reporting on progress is often less onerous than grant reporting, as paying the loan back is the critical factor
- Seeking more loans is easier as good re-payers are well placed to access more loans. To access grants, it takes a huge amount of time doing research and bid writing with no guarantee of success, even from an existing funder. If you factor the time it takes to get a grant into your calculations, the interest on a loan will often compare favourably
- Social investment is often a good source of bridging loans, which can help keep a project going while other, pledged, funds come in.
If your organisation is nervous of taking a loan, a good idea would be to contact a social investor to discuss the pros and cons. Also, ask them to put you in contact with current clients, so that you can talk directly to a borrower organisation and hear first-hand about their experience.
What do you need to do to access a loan?
A well-run organisation will be in the best position to access a loan. If the funders have queries, being able to answer them promptly with the right documentation will give them confidence in you. But given that being a well-run organisation should be the norm, this should not be worrying.
To be investment-ready, you will need the following in place:
- A governing document that allows you to take on loans
- A bank account in the name of the organisation (if you are a start-up, allow a long lead-in time for this as it can be a palaver to get an account set up)
- At least two signatories – preferably three – none of whom have a personal relationship
- Management accounts prepared in a timely manner
- Compliance with Companies House and/or Charity Commission requirements concerning documentation
- A diverse and inclusive board – or at least a strong plan to move the board towards diversity and inclusion
- A social impact framework, based on your organisations stated goals
- A business plan, which includes a case for the work you are doing, a marketing plan and financial projections. While funders will expect to see a plan to back up your organisation however old it is, this is especially important if you are a start-up or in the early stages of development
- Appropriate policies such as safeguarding, environmental and grievance policies in place and reviewed regularly
- A strong board and management
- Documented board meetings (so that minutes are available if requested).
It is important to remember, though, that it is people who make projects. Every type of investor I have ever worked with has taken this view. They want to be confident in YOU and your team and that, if systems and procedures need to change, YOU and the team will be the right people to do it.
Who are social investors?
Here are some social investor websites to explore
Social and Community Capital | NatWest Business
Big Issue Invest – The Big Issue
Social Investment Scotland | Providing Affordable Social Loan Funding
home – Community Finance Ireland
Find out more about Craigmyle’s social investment services
Contact Craigmyle’s social investment expert, Bernie Morgan.
