There are two main types of social investment
Blended – part grant, part loan
A package of funding that is a mixture of investment, that needs to be repaid and a grant that doesn’t need to be repaid. For example, a grant of £20,000 alongside a loan of £50,000 that needs to be repaid over 5 years with 10% interest.
When might I use it?
Either as a new organisation needing some grant funding to reach the point where you are able to take on investment and repay it, or as an existing organisation looking to expand but your new activities may not generate enough profit to repay an investment without some grant funding.
Where can I get it from?
From specialist social investors or grantmaking trusts. It’s also possible for organisations to create blended finance themselves by applying for grants alongside loans.
Browse our investors and advisors page to view organisations offering blended finance.
Pros
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Bridges the gap between grant funding and investment
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Reduces the risk that you will not be able to repay investment
Cons
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Not widely available
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Only likely to be available for investments of £250,000 or less
Other considerations
Not all blended finance products in the social investment market are publically available. In some cases, charities or social enterprises may apply to an intermediary for a loan but the intermediary may approach a grant funder to ask them to subsidise the deal with a grant.
Charity bonds
A tradable loan from a group of social investors to a charity or social enterprise over a fixed period of time with a fixed rate of interest. For example, if you issued a £2million bond over 5 years at 2% interest in 2017, you would pay the social investors £40,000 interest each year and repay the £2million in 2022.
When might I use it?
If you are a relatively large charity or social enterprise needing unrestricted funds to scale up your activities or develop a new line of business.
Where can I get it from?
Charity bonds are typically issued with the support of specialist intermediaries. The investment may come from institutional investors, high net worth individuals or retail investors.
Browse our investors and advisors page to view organisations providing support on charity bonds.
Pros
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Source of large scale unsecured finance with fewer restrictions than bank finance
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Opportunity to publicise your charity or social enterprise and involve supporters as investors
Cons
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May be expensive to set up
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Not suitable for high-risk investments into small organisations
More information
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Know How Non-Profit - Charitable Bonds
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Example case study - Golden Lane Housing
Community shares
A withdrawable, non-transferrable equity investment into a cooperative or community benefit society. It is a form of equity because the investors get a share of the organisation.
It is ‘withdrawable’ because the investor can take their money out of the organisation if they choose to. However, unlike conventional shares, a holder of community shares can not transfer them to another person and the shareholder has just one vote, regardless of the amount invested and the number of shares held.
When might I use it?
If you’re a local organisation needing investment to get up and running. For example, you’re a group of local people who want to buy the village pub and need to raise £150,000 to buy the lease and cover initial running costs.
Where can I get it from?
There are various ways to invest in community share offers including through online platforms. The Community Shares Unit and Community Shares Scotland will provide help to organisations looking to set up offers. Power to Change offers a Community Shares Booster programme which offers support and potential match funding to help you meet your target raise.
Pros
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Many community shares investors are local people who want a community owned business in their local area because they are potential customers for it
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Many investors put in small amounts and are happy if the organisation continues to exist rather than expecting a return on their investment
Cons
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Best suited to organisations that have large numbers of individual paying customers
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Only available to organisations set up as Co-operatives and Community Benefit Societies
More information
- Community Shares Unit - What are community shares?
- Know How Non-Profit - Community investment
- Example case study - Burley Gate Community Shop and Post Office
Crowd-funded investment
An investment that is raised via an online platform and not secured against an asset (a building or equipment). A ‘crowd’ of individual investors put (mostly) small amounts towards a loan to your organisation and you repay it on an agreed basis, usually with interest on top.
When might I use it?
Unsecured loans can be used for a range of purposes. Crowdfunding loans are a particularly useful way to raise small amounts (£5,000 - £50,000) relatively quickly.
Where can I get it from?
Specialists platforms, such as Ethex, Crowdfunder and Community Chest - offer opportunities to crowdfund with match funding from Big Society Capital. Some mainstream peer-to-peer business lenders may also lend to charities and social enterprises.
Pros
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A crowd of supportive investors may be more likely to provide you with the amount of investment you want on the terms you want it than an institutional investor
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Investors in social crowdfunding are likely to be supporters and also potential customers for your organisation
Cons
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Takes time and effort to get investors interested, particularly if you don’t already have a large group of supporters
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Difficult to raise large amounts through crowdfunding unless your crowd is huge and/or very wealthy
More information
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Nesta - Crowdfunding good causes
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UKCFA - Members
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Example case study - The Freedom Bakery
Energy Resilience
There are social investors who are actively investing for energy resilience of charities, social enterprises and community organisations.
Equity investment
An investment in exchange for shares in your organisation. For example, an investor pays £10,000 to own 10% of your organisation. Equity investors receive a share of any profits paid out by your organisation and get to have a say in how it is run, proportionate to the amount they invest.
When might I use it?
Charities and many social enterprises are not able to sell (i.e. issue) shares. If your social enterprise is structured as a Company Limited by Shares, equity investment is an option at any stage of the organisation’s development from start-up onwards. If your organisation is a Co-operative or Community Benefit Society you can make a community share offer.
Where can I get it from?
Specialist social investors, social angel investors (usually high net worth individuals) and venture capitalists.
Browse our investors and advisers page for equity investment from specialist social investors.
You can find social investment focused angels on Clearly Social Angels or mainstream angels through UK Business Angels Association.
Pros
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The investment is only repaid if and when the organisation makes a profit
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Equity investors may bring additional skills and contacts to the business
Cons
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You have to give up (some) control of your business
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Social enterprise may not make big enough profits to interest many potential equity investors
More information
- Know How Non-Profit - Equity Investment
- Example case study - Homes for Good
Quasi-equity
An investment that reflects some of the characteristics of shares but without your organisation offering up equity. Rather than paying back a set amount each month, your repayments are typically based on the performance of the organisation – such as profits or income. For example, you receive an investment of £50,000 and agree to pay the investor 2% of your annual income for 5 years.
When might I use it?
If you are an organisation that cannot sell shares, such as a charity or Company Limited by Guarantee but need an investment that you only repay if your business is successful. It may be more attractive to a social enterprise that cannot offer shares for whom a loan would be too risky. Quasi-equity potentially provides a more distributed sharing of risk and reward between investor and investee.
Where can I get it from?
Quasi-equity investments may be available from specialist social investors.
Browse our investors and advisers page to view organisations offering quasi-equity products.
Pros
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You do not have to repay money you don't have
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Investors may offer additional support as they only get their money back if you are successful
Cons
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If your organisation is very successful you are likely to repay more through quasi-equity than you would if you took on a loan
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Quasi-equity is not widely available as many investors believe these deals are too risky and too complicated to set up
More information
- Access & Flip Finance - Social Shares: Risk finance for charities and social enterprises
- CAF Venturesome - Quasi-equity: Case study in using Revenue Participation Agreements
- Example case study, Pioneers Post - Care organisation's success proves social investment market strength
Secured loan
An investment that works like a mortgage on a house. An investor provides your organisation with a loan against an asset (often a building or equipment) as ‘collateral’. Alternatively, an organisation's parent company may offer its shares in the organisation as the collateral. You repay the loan on an agreed basis (e.g. regular monthly payments) usually with interest on top.
When might I use it?
To cover some or all of the cost of buying the asset. For example, your organisation’s office building, a community asset such as a community centre, or expensive equipment such as a bus.
Where can I get it from?
Secured loans are available from social banks but may also be available from high street banks. Foundations and individual social investors might also make secured loans.
Browse our investors and advisers page to view organisations offering secured loans.
Pros
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Interest rates likely to be lower than unsecured loans
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Common form of investment
Cons
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If you don’t repay the loan, the investor may have the right to take possession of the asset and sell it to recover the debt
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Not available if you don’t own a building or another large asset or have a parent entity willing to offer its shares in an organisation as collateral
More information
- Know How Non-Profit - Secured loan
- Example case study - London Early Years Foundation (LEYF)
Social Impact Bonds
A Social Impact Bond (SIB) is a payment-by-results contract where social investors pay for your organisation to deliver a service – for example, helping homeless people to find a home – and the Government repays the investors with interest if the service is successful.
SIB Provider Toolkit
SIBs are not "bonds" in the conventional sense. While they operate over a fixed period of time, they do not offer a fixed rate of return. Repayment to investors is dependent upon specified social outcomes being achieved. Therefore in terms of investment risk, Social Impact Bonds are more similar to that of an equity investment
When might I use it?
If your organisation provides or would like to provide a service that delivers measurable social outcomes that could save the Government money. For example, helping people to find jobs or preventing prisoners from reoffending.
Where can I get it from?
As a first step, information is available from the Government’s Centre for Social Impact Bonds or Big Society Capital. Approach them for further guidance if a SIB seems like a good option for you.
Pros
- Social investors cover the cost of delivering the service so your organisation definitely gets paid
- Many investors in SIBs will support you to improve the way you deliver your service and help you to measure your impact more effectively
Cons
- Setting up a SIB can be costly and time-consuming
- SIBs only work if your organisation delivers a measurable social impact and a commissioner (for example, a council) believes it will save them money
More information
- Department for Culture, Media & Sport - Social Impact Bonds: an overview
- Department for Culture, Media & Sport - Centre for SIBs
- Big Society Capital - Social Impact Bonds
- Example case study - Aspire Gloucestershire
Social property funds
Funds managed by a specialist firm, who raise money from investors, and then use the funds to buy property that can be used by a charity to deliver its services. The charity leases the property from the social property fund.
When might I use it?
If you require substantial housing stock for the service you're delivering. For example, you're a charity that provides houses and an assisted living service for disabled people.
Where can I get it from?
A few organisations, such as Cheyne and Funding Affordable Homes, run large specialist funds which provide investment into large scale housing solutions. It is also possible to access this kind of investment through individual landlords via bespoke arrangements.
Browse our investors and advisers page to view organisations running social property funds.
Pros
- You can access property without needing to take on large amounts of debt to buy it
- Particularly relevant for providing housing for vulnerable people, where large amounts of money are required
Cons
- Only likely to be available for relatively large projects – worth £10 million or more
More information
- Example case study - St Mungo's Broadway
Unsecured loan (incl. overdrafts)
An investment that is not secured against an asset (a building or equipment). An investor provides your organisation with a loan and you repay it on an agreed basis, usually with an agreed amount of interest on top.
When might I use it?
Unsecured loans can be used for a range of purposes including getting started, ‘working capital’ to manage gaps in your income and ‘scaling up’ to grow and expand your business.
Where can I get it from?
Specialist social investors, angel investors and some and some grant-making trusts. Some mainstream business lenders may also lend to charities and social enterprises.
Browse our investors and advisers page to view organisations offering unsecured loans.
Pros
- You don’t need to own a building or offer an asset to get one
- They are relatively simple, easy-to-understand investment products
Cons
- If you don’t repay the loan, the investor can take you to court to recover the debt
- Interest rates are likely to be higher than a secured loan as it is riskier
More information
- Know How Non-Profit - Bridging loan
- Know How Non-Profit - Overdraft facility