Getting to grips with social finance
Key points from the Urban Forum/Newcastle CVS/VONNE event on 26 June 2012
This note serves to complement the slides and is not intended as an accurate verbatim record of
what was said but a summary of the key points including my own thoughts.
As you can see from the slides, there was a lot of information presented to us by SES
(Sustainable Enterprise Solutions) about social enterprises and social finance and from Entrust on
their Microloans fund.
Key points
1. Social finance is a type of finance that requires not only a social return (as do grants, SLAs
and contracts) but a financial return (i.e. for the loan to be paid back), although this aspect
differs greatly in terms of what return is required from different funders. There are different
options and, as yet, no central clearing house for social finance (compare this with getting a
mortgage or loan for a car where you can go on price comparison websites to compare
deals).
2. Currently, there are commercial and personal investors who are putting money into social
finance because it
a. meets their requirements for Corporate Social Responsibility
b. helps them spread their portfolio of investments into new ventures
c. pays better rates than a deposit account with a bank.
3. Social finance is an option if you want to develop or sustain a service but don’t have other
sources of funding which are either
 appropriate – e.g. if it would be inappropriate for a small community group to take on a
contract with a local authority.
 available – due to the reduction in grants available from charitable trusts, public bodies,
etc. or because competition meant your organisation was unsuccessful at obtaining a
grant.
 or desirable – e.g. it conflicts with the values of your organisation or the requirements of
the funder were onerous.
4. Accessing social finance means taking on a debt, so you need to identify how you would
repay that debt (i.e. not only the capital but the interest too). This could be by
a. making your organisation more efficient so it releases money to repay the debt
b. developing and/or expanding a service for which you can charge (individuals,
companies, other VCS organisations, grant funders) at a rate to enable you to repay
the debt
c. using an asset bought by the loan to meet your needs and get income from (e.g.
using the loan to buy a minibus; thereby saving on transport costs from your existing
provider but also hiring out the minibus to community groups, etc. to gain income.
Clearly you need to make a surplus/profit here so it’s important to make sure there’s
a market for it and that you can compete in that market to make money to repay the
debt.
5. Investment readiness – to apply for social finance you need to provide a suite of
documentation to show you run your business well and that the business case shows you
can make a profit to repay the loan. E.g. Entrust would want a copy of your balance sheet,
Profit & Loss, Business plan and other documentation to apply for one of their Microloans.
An organisation will only have this kind of financial information if it is investment ready; for
thoughts on what this term means, go to www.ncvo-vol.org.uk/networking-
discussions/blogs/199/11/06/23/big-society-bank-are-you-investment-ready
Importantly, an organisation is eligible for a Microloan only if it has been turned down for a
loan by a bank.
6. The seminar did not cover Social Impact Bonds, a financial product which handles risk
differently to a straight loan. Information on SIBs can be found at
www.socialfinance.org.uk/work/sibs
Conclusion
Social finance will be suitable for some third sector organisations, especially those ones which are
generating an income via trading. It’s important to be aware of the risks of taking out a loan and
different organisations and Boards of Trustees view risk differently. Social finance is a relatively
new field so there were few examples given of where it has worked and it what circumstances and
for which organisations.
Neil Shashoua – neil@trapezeconsulting.co.uk
27/06/2012