Sharing our seven top tips for anyone considering social investment funding: What have we learned in the last 10 years?
If you are new to the world of social investment and not sure where to start, here are seven top tips to get you going. These tips are based on Eastside People’s experience of supporting charities and social enterprises to secure social investment for over 10 years. During this time, we have helped our clients secure over £12.6 million in investments and contracts to further their charitable aims and deliver social good.
- Remember that social investment is a form of repayable finance
Unlike grant making trusts or foundations, a social investor will want to see both a social and financial return. This will normally mean repaying the money over a period of anywhere from 3 years to 20 years depending on the terms. If you are borrowing money for a new building or other operational asset, repayments will normally start once you are generating income from that asset.
Interest will also be repayable over the period of the loan, often fixed at or above the Bank of Interest base rate. Typically social investors will offer more competitive loans than commercial banks or other financial institutions. Some social investors may also offer an element of non-repayable grant alongside their repayable loan.
- Shop around for the best fit for your cause
There are over 100 social investment funds and programmes in the UK, so finding the right one will take time. Some funders are localised to specific counties or Unitary Authority areas. Others will focus on particular cohorts – such as care leavers or ex-offenders. A growing number will now only fund new affordable housing, but there are plenty of others that support a wider range of capital needs.
Investors will have a variety of offers, such as varying lending periods, fixed rate deals, and grant/loan packages. You also want an investor who shares your values, as you’ll be working closely with them over potentially a long period of time.
Good Finance is an ideal place to start shopping around, as you can search by the parameters above and more. It’s worth highlighting two or three investors if you can, so you have options if one approach doesn’t work out. It’s also often possible to get social finance from more than one investor, especially on larger projects.
- Be clear about what you need the money for
Social investors are rarely interested in covering your funding shortfalls. They want to back sustainable organisations that require an injection of cash to get a new capital purchase or major project off the ground. Make sure you can define your investment need, in terms of the amount of money required and what you are going to spend it on.
If you are seeking investment to buy a new building, vehicle or other major capital asset, think about how that asset will be used within your charity or social enterprise. Who will benefit from it, and how will the running of that building, vehicle or other asset be sustainable long term? You will need to repay your investment over time, so you don’t want to put that funding into something that will not achieve a cash surplus.
- Have strong financial controls and realistic budgets
You may be taking a social finance loan for ten years or more. For this reason, social investors will want to take a long view of your financial sustainability. Informed by your last two years audited accounts, you should also be able to show how your current year budget is performing, and what your projections are for your income and expenditure over the next three years.
What is your mix of income? If you are wholly reliant on one source of funding, say from grants from trusts and foundations, how likely are these to continue in the next few years? Investors will also want to look at your cost base to see if inflationary trends and wage growth might mean your ability to repay any social investment could be at high risk. This financial analysis may sound like a lot of work, but it is good practice that can also give reassurance to your Trustees or Board Directors and save time when you have your regular annual audit and going concern review.
- Understand your social impact
Every charity and social enterprise wants to do good in the world, but how do you communicate this? Think about a short ‘elevator pitch’ – no more than 50 words that could be read or spoken in 30 seconds. Try to summarise your charitable purpose or mission to fit those parameters.
This will be a key requirement when you approach social investors. They want to be excited by your passion and understand what difference their investment will make to your beneficiaries. Of particular interest is your social impact – how the lives of those you work with are improved through your support and interventions. If you don’t measure this already, try speaking to a few people who have passed through your service and asking how their life and prospects have changed as a result.
- Strengthen your governance
A key test for any social investor is how strategic decisions are made in your organisation. If you have a small Board of Trustees with family connections or who have held their posts for many years, the independence and reliability of decisions may be in doubt. Having at least three unconnected and independent Directors or Trustees recruited for their business and professional skills is good practice for any modern charity or social enterprise. Be prepared to share records of decisions and other Board papers with your preferred investor.
If the social investment you require is to buy, build or refurbish a property, consider how you might bring expertise in this area on to your Board, either by recruiting new Directors or Trustees who have led or managed similar projects, or appointing an adviser to the Board if this is more appropriate. A Skills Audit is a good way to better understand the capabilities of your current Board and make new appointments to plug any strategic gaps. This is an area that Eastside People can assist with.
- Support and grants are available to help you prepare
If you need to address one or more of the areas highlighted above, you might be able to apply for a grant from the Reach Fund which supports social investment. You can find more information on this as the Social Investment Business website.
Once approved, this funding can be used to pay for external consultancy support, such as that offered by Eastside People, to make your charity or social enterprise investment ready.
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Blog by Head of Programmes Jo Simpson and Eastside People consultant Stephen Elsden.
Next steps to progress your sopcial invetsment journey
Watch the recording of our webinar “What is social investment for charities & non-profits & how to get it” with social investment specialists Good Finance, social sector savings and loans bank Charity Bank, Big Issue Invest, the investment arm of the Big Issue group and Own Merit, the Community Interest Company that aims to build a safer community by providing prison leavers with accommodation, support and sustainable alternatives to crime
If you’d like more information on any of the points above, or to find out more about Eastside People’s social investment support service, check out our social investment website page or talk to us.
