Financing your charity
with a loan
Anyone who knows what makes their local community tick will understand the importance of a thriving charity and social enterprise sector. They will also know that the biggest impact can come from organisations of all sizes. However, many charities and social enterprises, especially those based in communities, find it hard to raise capital from mainstream sources in order to expand their operations. A lack of finance can mean that opportunities to further transform communities are lost.
One solution to this problem is social investment. The market for social investment is growing strongly, with total demand in the UK forecast to reach around £1 billion by 2015/16. Local Impact Funds, launched by the Social Investment Business in Liverpool earlier this year, are just one example of continuing innovation in the social investment space.
Demonstrate social and financial returns
However, in order for charities and social enterprises to successfully attract investments from funds like this in order to scale up their activities, they need to demonstrate that they can create social and financial returns. This often requires the development of new operating models, robust business plans and clear revenue streams that can convince outside investors of the value of the deal.
Bidding for contracts to deliver public service contracts is now increasingly common for charities and social enterprises. The market for outsourced public services is strong and has been encouraged by a range of government policies such as the Social Value Act and the Open Public Services programme. According to the Cabinet Office, 28% of social enterprises were contracted to deliver public services in 2011/12.
Applying for much needed finance might be a new experience for many charities and social enterprises. Winning these contracts will be challenging if they have little experience of bidding for them.
When first thinking about taking on investment, community organisations can often benefit from support to work out the feasibility of the plans they want to put in place. This may include support for product development, to stress test their business plan and financial model, to improve their governance processes, or simply just someone to go through the numbers and make sure they work.
Support to present business plans
Many charities and social enterprises will have good business plans and a strong management team in place, but may still need some support to understand how to present this in a way that makes sense for investors or commissioners. This kind of later stage investment readiness or contract bidding support can be crucial to raising finance and winning key contracts.
What many organisations need are simple finance products, usually unsecured loans, and typically under £150,000. Finding the right sources of capital to be able to deliver these simple loans to community based organisations is an ongoing challenge for social investment fund managers. However, we believe our new product, Local Impact Funds, will help organisations of all sizes access the finance they need.
Local Impact Funds are a local social investment product which provides tailored support and finance to charities and social enterprises in a local community. Earlier this year SIB launched the UK's first Local Impact Fund in Liverpool working in partnership with Social Enterprise North West. The £2 million Liverpool City Region Impact Fund combines investment from the European Regional Development Fund and the Social Investment Business’ own foundation.
The fund will offer business support and simple finance to local charities and social enterprises, providing affordable, unsecured loans of up to £250,000, helping them to grow, create new jobs and scale up the impact they make in their communities.
Commenting during the launch in January, Nick Hurd MP, Minister for Civil Society, said: “Local Impact Funds are an exciting opportunity to support organisations that can bring both economic and social benefit to an area. Britain leads the world in developing the idea of social investment. It is fantastic that Liverpool leads the country in developing a Local Impact Fund. Where Liverpool leads, I hope that others will follow.”
Social investment across the UK
We believe this model can be replicated all over the country, and that Local Impact Funds could deliver £100m to local charities and social enterprises within a couple of years. They will be a critical first step in bringing social investment to communities all across the UK.
Ten further cities and regions, from Devon to Cumbria, have already announced plans to set up their own Local Impact Funds. We believe that 15 to 20 local areas will want to launch a Local Impact Fund by 2016, and we expect each of these funds to initially be between £5 million and £10 million.
Local Impact Funds will be able to support organisations at all stages of their growth journeys. This could be from the first steps for a charity looking for help to get investment ready; to bigger social enterprises looking for investment to grow their operations.
As well as unsecured loans, Local Impact Funds will also be able to provide small grants to support getting projects or ideas started, bigger grants to help turn projects into business propositions or to increase capacity and investment readiness grants to help organisations seeking to raise investment. We have seen that providing the right support at each stage of the investment journey can be the key to successful growth.
If you want to bring a Local Impact Fund to your area and raise funds for your organisation, you will first need to check the criteria to see if you are eligible for loans. You are likely to need to be an organisation delivering benefit within a specific area, run by local people.
You will also need to demonstrate a clear social mission with significant measurable, direct outcomes, and be able to explain how the loan will allow you to make greater impact. You will almost certainly have a mission statement, defining your core aims, and what you hope to change and achieve.
Eligibility for investment readiness grant
Your mission statement needs to be backed up by a watertight business plan, too. This will include financial projections, showing how you will generate the money to pay back the loan. You may also be eligible for an investment readiness grant, a key element of the Local Impact Fund model we are piloting in Liverpool, which is designed to help charities and social enterprises make the best use of their loan and develop activities to pay it back.
You will also need to support bringing one to your area. This will mean speaking to your local infrastructure groups and building strong partnerships with like-minded organisations which also want to access money for local need. It is also worth building links with your Local Enterprise Partnership (LEP) and the local authorities to make sure they know they can support, and potentially invest in, a Local Impact Fund and help you identify who could invest in and create a one for your area.
They should also be able to help you demonstrate how investment in your organisation will benefit your local economy. Charities and social enterprises are a powerful and growing economic force, contributing £55 billion to the UK economy and employing around two million people. They employ local staff and 82% of organisations reinvest their profits locally. By explaining how your project will create jobs and bring skills and investment to your community you will be making a strong case to investors and local decision makers.
The purpose of Local Impact Funds is to grow the local social economy, helping charities and social enterprises access support and finance to scale up their operations and social impact. We exist to do this, so if this sounds like you, then please get in touch!
