In this blog Carol Botten explains why it's worth finding out if social investment could work for you. It first appeared on the Good Finance website.
Is it time to stop ignoring social investment?
I was having lunch with the CEO of a youth charity with a £500K turnover who said to me, “I must pick your brains on social investment. I think I’ve ignored it for too long, I think I should learn more…”
I replied, “Imagine a future when every year you are earning 50% of your own income through a reliable income stream. What would that mean for you? Imagine being able to decide how you use that money to deliver your organisations’ mission, rather than trying to juggle the constraints of grants and contracts.”
He was sold on the idea, obviously. “But what’s that got to do with social investment”?
Taking a loan is still a relatively new concept for many organisations. Not just those at the smaller-sized end of the sector.
Why spend time considering a loan if you could get a grant or a contract?
Social investment as a replacement for grants or contracts is a myth that we need to address!
Many organisations want to develop trading income streams, but they haven’t got the capital, capacity or capability to do so. And this is where social investment can be useful to help you diversify your income sources.
Ultimately, you could have better financial resilience as you gain greater control over a larger proportion of your income. Social investment sits alongside grants, contracts and other sources of income. It’s not here to replace them - it’s simply another tool in your toolbox.
Learn from others' experiences
I told the CEO about a charity who used housing to develop an earned income stream, whilst also fulfilling their mission.
The charity uses some of their reserves to buy a house. Then they work with a local training provider/construction company to train five young people to help refurbish the house. This enables them to then rent it out to three young people offering them a secure home with a ‘good’ landlord. Their rent payments or benefits go back into the organisation to repay the investment. Over time the initial investment is repaid.
Find a repayable finance model that works
I explain the charity in this example wanted to buy five more houses. They don’t have enough in reserves to cover the costs, but they do have an asset as some security.
They talk to a social investor, share their ambitions and business plan. The investor supports them to apply for investment.
With this, they buy five more houses and repeat the process again, and again…
Now they're generating enough income to pay back the social investment and generate a surplus. Also, this is unrestricted income for the organisation that they are in control of.
It’s a simplified example, but I wanted to show what might be possible and how social investment can help. For more examples, browse Good Finance's case studies.
It is risky trying something new and things don’t always work out. But for some, the risk of not trying could be more of a threat to the long-term survival of their organisation. Social investment is not for everybody. However in these times, there is less and less money to go round so we should be considering all our options!
If you’re like the CEO I was speaking to, and feel you’ve ignored social investment for too long, why not attend a free Good Finance event to learn more?
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