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Types of social investment

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 investor loans 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

Borrow

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.

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 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

  • 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. 

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 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

  • 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

Borrow

Community Investment Enterprise Facility (CIEF)

Community Investment Enterprise Facility (CIEF) provides debt finance to Community Development Finance Institutions (CDFIs).

CIEF was established by Big Society Capital, is managed by Social Investment Scotland and delivered on a local level. Find out more here. 

Community Investment Enterprise Facility (CIEF)

Shares

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.

Community shares

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

  • Many community shares investors are local people who want a community owned business in their local area because they are potential customers for it

  • Many investors put in small amounts and are happy if the organisation continues to exist rather than expecting a return on their investment

Cons

  • Best suited to organisations that have large numbers of individual paying customers

  • Only available to organisations set up as Co-operatives and Community Benefit Societies

More information

Borrow

Coronavirus Business Interruption Loan Scheme (CBILS)

The Coronavirus Business Interruption Loan Scheme (CBILS) is a Government scheme that provides financial support to smaller businesses affected by coronavirus (COVID-19). 

The scheme helps small and medium-sized businesses to access loans and other kinds of finance up to £5 million. The government guarantees 80% of the finance to the lender and pays interest and any fees for the first 12 months.

There are some social investors that provide finance via this scheme. Find out more about the scheme here.

Coronavirus Business Interruption Loan Scheme (CBILS)

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 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.

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 - 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

  • 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

Borrow

Emergency Finance

During the COVID-19 crisis, many social investors have adapteded their approach to better support frontline organisations. 

The organisations are doing one or more of the following:

  • Providing additional support
  • Taking on new investees
  • Responding to inquiries within 4-6 weeks 

They can be found by the orange exclamation mark next to their profile in our directory. 

Emergency Finance

Shares

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.

Equity investment

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

  • The investment is only repaid if and when the organisation makes a profit

  • Equity investors may bring additional skills and contacts to the business                          

Cons

  • You have to give up (some) control of your business

  • Social enterprise may not make big enough profits to interest many potential equity investors

More information

Other

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.

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 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

  • 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

Borrow

Resilience and Recovery Loan Fund (RRLF)

The Resilience and Recovery Loan Fund (RRLF) is a new fund for social enterprises and charities who are, as a result of COVID-19, experiencing disruptions. 

For many organisations who have lost income, grants will be most appropriate, but in some cases where there is an additional cash flow need (for example where expected future payments are delayed) loans may be appropriate. Established by Social Investment Business with support from Big Society Capital, the RRLF will be delivered initially by three social investors. 

Find out more about it here. 

Resilience and Recovery Loan Fund (RRLF)

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.

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 our investors and advisers page 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

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

Social Impact Bonds

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

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.

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 our investors and advisers page 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 investments into property

  • There are a number of excluded activities - see Social Investment Tax Relief from Big Society Capital for more information

More information

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. 

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 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

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.

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 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

 

Here are some other funding options you might want to consider

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.

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, and keep an eye on Nesta's developing directory 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 agreed amount of loan finance that is available to manage your cash flow when you need it.

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. 

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 doing and 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).

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 CentralBeehive 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 circumstances change

  • It’s difficult to get grant funding to develop a business activity

More information

Reserves

Money that your organisation has in the bank as a result of making profits or generating surpluses.

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 have to 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

Donations from 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.

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