Image
There are two main types of social investment
1. Borrowing (debt)
Taking out a loan which you agree to repay over a set period of time. Most debt investments are paid back with interest - a fee you pay to the investor for the use of their money.
E.g. an investorloans your organisation £10,000 and you repay a total of £11,000 at £229 per month over 4 years.
2. Shares (equity)
Selling shares in your organisation to an investor. Equity investors receive a share of any profits paid out by the organisation and get to have a say in how the organisation is run.
E.g. an investor pays £10,000 to own 10% of your organisation.
Explore specific types of social investment
Use our tool below to explore specific types of social investment funding
Close
Borrow
Blended – part grant, part loan
A package of funding that is a mixture ofinvestment, that needs to be repaidand a grantthat 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.
Read more +
Blended – part grant, part loan
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 organisationsto create blended finance themselves by applying for grants alongside loans.
Browse our investors and advisors page to view organisations offering blended finance.
Pros
Bridges the gap between grant funding and investment
Reduces the risk that you will not be able to repay investment
Cons
Not widely available
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.
Borrow
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.
Read more +
Charity bonds
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 typicallyissued 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
Source of large scale unsecured finance with fewer restrictions than bank finance
Opportunity to publicise your charity or social enterprise and involve supporters as investors
Cons
May be expensive to set up
Not suitable for high-risk investments into small organisations
More information
Know How Non-Profit- Charitable Bonds
Example case study -Golden Lane Housing
Other
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 individualinvestors put (mostly) small amounts towards a loan to your organisation and you repay it on an agreed basis, usually with interest on top.
Read more +
Crowd-funded investment
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 - offeropportunities to crowdfundwith match funding from Big Society Capital. Some mainstream peer-to-peer business lendersmay also lend to charities and social enterprises.
Pros
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
Investors in social crowdfunding are likely to be supporters and also potential customers for your organisation
Cons
Takes time and effort to get investors interested, particularly if you don’t already have a large group of supporters
Difficult to raise large amounts through crowdfunding unless your crowd is huge and/or very wealthy
More information
Nesta - Crowdfunding good causes
UKCFA - Members
Example case study - The Freedom Bakery
Other
Energy Resilience
There are social investors who are actively investing for energy resilience of charities, social enterprises and community organisations.
Read more +
Energy Resilience
Other
Quasi-equity
An investment that reflects some of the characteristics of sharesbut without your organisationoffering 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.
Read more +
Quasi-equity
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 aloan 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 ourinvestors and adviserspage to view organisations offering quasi-equity products.
Pros
You do not have to repay money you don't have
Investors may offer additional support as they only get their money back if you are successful
Cons
If your organisation is very successful you are likely to repay more through quasi-equity than you would if you took on a loan
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
Borrow
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.
Read more +
Secured loan
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 ourinvestors and adviserspage to view organisations offering secured loans.
Pros
Interest rates likely to be lower than unsecured loans
Common form of investment
Cons
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
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)
Other
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
Read more +
Social Impact Bonds
SIBsare 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 Bondsor 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
Tool
Social Investment Tax Relief
Social Investment Tax Relief is a tool that can be used in combination with other products.
A tax break for individual investors into charities and social enterprises. Investors get 30% of the cost of their investment off their next income tax bill so, provided certain conditions are met, if an investor makes a £100 investment into your organisation, they can claim £30 back. Investors can’t sell their shares or have their loan repaid for 3 years, although they can receive interest on loans.
Read more +
Social Investment Tax Relief
When might I use it?
To raise money from individual investors. Social Investment Tax Relief (SITR) is available to investors buying equity or providing unsecured loans to charities, Community Interest Companies and Community Benefit Societies. The current maximum amount of SITR-eligible investment an organisation can receive is around £1.5m if they've been trading for less than 7 years.
Where can I get it from?
Some specialist social investors run SITR-backed funds – and some crowdfunding platforms enable organisations to offer SITR investments. Big Society Capital provides a guide for organisations interested in creating their own SITR-loan offer.
Browse ourinvestors and adviserspage to view organisations who run SITR-backed funds.
Pros
It incentivises investors to make earlier stage (potentially riskier) investments
It is available to both borrowing and equity products
Cons
Not available for investmentsinto property
There are a number of excluded activities - seeSocial Investment Tax Relieffrom Big Society Capitalfor more information
More information
- VIDEO: What is social investment tax relief?
- Big Society Capital - Social Investment Tax Relief
- Big Society Capital & Flip Finance - DIY social investment guide
- Bates Wells Braithwaite - A simple guide to financial promotions
- Example case study - Fareshare South West
Other
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.
Read more +
Social property funds
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 AffordableHomes, run large specialist fundswhich provideinvestment into large scale housing solutions. It is also possible to access this kind of investment through individual landlords via bespoke arrangements.
Browse ourinvestors and adviserspage 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
Borrow
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.
Read more +
Unsecured loan (incl. overdrafts)
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 someand some grant-making trusts. Some mainstream business lenders may also lend to charities and social enterprises.
Browse ourinvestors and adviserspage to view organisations offering unsecured loans.
Pros
- You don’t need to own a building or offer an assetto 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
Here are some other funding options you might want to consider
Close
Accelerators, incubators and challenges
Early-stage investment and support – including training and office space – for business ideas that have the potential to scale. Many social accelerators and incubators are focused on ‘Tech for Good’ businesses seeking to use digital technology to make a positive social impact.
Read more +
Accelerators, incubators and challenges
When might I use it?
If you have an early stage organisation needing investment and support to get started, or just an idea for a business you would like to develop.
Where can I get it from?
‘Tech for Good’ businesses or supporting social enterprises to develop digital projects are a particular focus at the moment. Have a look at the Entrepreneur Handbook's comprehensive list of Business Accelerators in the UK, Tech London's list of incubators, andkeep an eye on Nesta's developingdirectory of accelerators and incubators in the UK.
Pros
Combination of investment, support and expert help to get your organisation up and running
Join a wider community of social entrepreneurs starting new organisations
Cons
In most cases, not open to charities, Community Interest Companies and Co-operatives
Mainly suitable for businesses – such as tech startups – that have the potential to grow very quickly
Conventional finance
Conventional finance – including high street banks – offers many of the same products available from social investors with the key difference being that the investors do not have a social motivation to their investment. Mainstream banks may also offer you an overdraft facility – an agreedamount of loan finance that is available to manage your cash flow when you need it.
Read more +
Conventional finance
When might I use it?
Conventional finance is worth considering at any point you’re seeking investment to see whether the options on offer are as good or better than what’s available from specialist social investors.
Where can I get it from?
High street banks and alternative lenders to SMEs.Investment readiness support may help you to approach other potential sources of mainstream finance.
Pros
- Conventional finance may be able to offer cheaper loans than social investors
- Conventional investors may be able to invest more quickly than social investors
Cons
- Conventional investors will treat your organisation like any other business so may not be as patient as social investors if you cannot meet your repayment
- Conventional investors are not specialists in social investment so may not understand your organisation
Friends and family
Financial support from people you know or who support you personally. For example, three friends/family members loan you £10,000 between them to get your organisation up and running.
Read more +
Friends and family
When might I use it?
When you’re getting started – at a point where your organisation has no track record or access to other forms of finance.
Where can I get it from?
Normally from people who you know well, or friends of friends who have an interest in what you’re doingand have some spare cash.
Pros
These investors support you and what you’re doing so are likely to be patient about when they get their money back
Investments are usually trust based so should not be time-consuming and complicated to arrange
Cons
If the organisation fails, your friends and family members lose their money
Problems for your organisation could have a negative effect on your personal relationships
Grants
Money paid to you to carry out a specific project (restricted grant) or to generally support your organisation’s work (unrestricted grant).
Read more +
Grants
When might I use it?
Grants have many purposes but, when considered as a possible alternative to social investment, they might be used for developing new business ideas, testing whether a product or service works, or helping to sustain a business activity that is socially useful but not profitable. Grants may also available to help your organisation to become investment ready.
Where can I get it from?
A Government agency or grant-making trust or foundation. Funding Central,Beehive Giving and The Good Exchange are three different portals that will help you search for relevant funding options.
Pros
Typically you don’t have to pay the money back
Funders may provide additional support and advice
Cons
Grant funders may insist you stick to the activities on your grant agreement, rather than adapting your business plan when circ*mstances change
It’s difficult to get grant funding to develop a business activity
More information
- NCVO - Funding: grants
- Directory of Social Change - Government funding portal
- Beehive Giving
- The Good Exchange
Reserves
Money that your organisation has in the bank as a result of making profits or generating surpluses.
Read more +
Reserves
When might I use it?
Spending your reserves, if you have them, is a possible alternative to seeking other investment or funding in any situation. However, this is a risky option if you don’t have large amounts in reserve. Many organisations aim to maintain a specific level of reserves to guard against a sudden drop in income and cover possible costs of closing the organisation.
Where can I get it from?
Reserves come from income generated through trading, donations or unrestricted grants.
Pros
- The investment does not haveto be repaid
- If the investment is successful, you get all the profits or surpluses
Cons
- If the investment is unsuccessful, you lose the money
- You are deciding whether to invest in yourself – an outside investment shows that someone apart from you believes your idea is worth investing in
Reward-based crowdfunding
Donationsfrom lots of people who support what your organisation is doing, given in exchange for ‘rewards’ which can range from a thank you on your website, to merchandise such as branded bags and t-shirts, to the actual product you are raising money to develop.
Read more +
Reward-based crowdfunding
When might I use it?
To raise small amounts (£2,000 - £50,000) to launch a new product or service.
Where can I get it from?
General crowdfunding platforms or crowdfunding platforms that specialise in working with charities and social enterprises.
Pros
- You don’t have to pay the money back
- It’s a good way of attracting customers and finding out whether people like your product enough to pay for it
Cons
- It takes lots of time and effort, particularly if you don’t already have a large group of supporters
- Creating rewards can be costly if your organisation does not have physical products to offer
More information
- UKCFA - What is crowdfunding?
- School for Social Entrepreneurs -Crowdfunding for charities and social enterprises