£30m loan fund to offer commercial finance to charities and social enterprises
Howard Lake | 7 November 2014 | News
Social and Sustainable Capital (SASC) is launching a loan fund of £30 million to help charities and social enterprises grow and develop their services. In partnership with Santander, SIB Group and Big Society Capital, the Third Sector Loan Fund is designed to encourage banks and other mainstream financial institutions to invest in funds which finance charities and social enterprises.
The fund is built on a catalytic £1.5 million repayable grant from the Social Investment Business Group, which has agreed to bear losses before other investors and forego any profits.
Santander is investing 13.5 million, which is believed to be the largest single investment by a mainstream UK financial institution in a third party fund that is lending to social ventures. The fund as a whole becomes the UK’s largest fund investing range of charities and social enterprises across all social sectors.
Loans of £250k to £3m
It will make loans of £250,000 to £3 million, both secured and unsecured. Its first investments will be announced in the next few weeks.
Chancellor George Osborne said:
“With social investment, we’ve got a great idea that uses the power of finance to tackle some of the most difficult social problems. It is one of our priorities as a government, and an area in which Britain leads the world.
“Investment into social enterprises can play an important role in our long-term economic plan as well as in addressing the toughest social issues. I congratulate Santander, Big Society Capital and the Social Investment Business in developing this fund, and would hope to see other High Street banks following their lead.”Advertisement
Different priorities for different lenders
The Third Sector Loan Fund recognises that different types of investors have different priorities.
• philanthropists want their money to have maximum impact on the causes they care about, with or without a financial return to them;
• socially motivated investors seek both a social and financial return;
• mainstream financial institutions want to support positive social change while achieving security of investment and an appropriate risk-adjusted rate of return.
Ben Rick, Managing Director of SASC, explains:
“Charities and social enterprises providing solutions to our social challenges need access to finance to enable them to do their work.
“We have raised £30 million in this fund by catering for investors with different priorities on risk, financial return and social impact. The fund absorbs this complexity so that frontline organisations get what they need – simple, straightforward loans.”
Nick O’Donohoe, CEO of Big Society Capital, which is capitalised with approximately £600 million from a combination of English dormant bank accounts and the four main UK high street banks, added:
“This fund is ground-breaking for social investment. It shows that, with creativity and commitment, banks such as Santander can find a way to meet both their commercial requirements and do more to support charities and social enterprises. This is an important milestone in unlocking finance from mainstream financial institutions and exactly the sort of thing we want to use our investments to enable.”
10 year lifespan
The Third Sector Loan Fund will run for 10 years and finance activities which allow social ventures to scale up.
Social and Sustainable Capital and the Social Investment Business are already planning to develop similar funds, working with philanthropic funders such as trusts and foundations, corporate CSR programmes, and wealthy individuals, who are interested in using their money as catalytic capital to stimulate further investment for the causes they care about.
SASC, which is authorised and regulated by the Financial Conduct Authority, is itself a social enterprise. It is already identifying suitable organisations for the Third Sector Loan Fund to invest in, and make secured and unsecured loans, charging interest of 6%-12%.
About Howard Lake
Howard Lake is consultant editor of UK Fundraising. He founded the site in 1994 and successfully sold it in 2022. As director of Giving X Ltd he is exploring growing giving on a massive scale.
He is the founder of Fundraising Camp and co-founder of GoodJobs.