Is social investment right for you?
It’s always useful to have money in the bank. But that doesn’t mean that taking money or investment from other people is always the right move for your organisation. Investment comes with a cost and you have to decide whether the potential benefits outweigh the costs.
Have you asked yourself these questions?
- What do you need the investment for? It might be to purchase or refurbish assets, working capital (to deliver payment by results contracts), bridging finance (waiting for a confirmed grant) or to expand existing services.
- Is there an income stream? You will need to identify a clear source of income that can be used to repay your investor in way that is affordable for the organisation.
- What social impact are you hoping to create? Investors will want to be assured that you have a clear vision of the change you are trying to achieve.
Does your organisation need investment?
It could be that the best way forward for your organisation is to build up money in the bank gradually by selling products or services to customers at a profit, rather than looking to raise a lump sum from an investor.
The key point here is that you need to be clear about what taking on investment will enable you to do that you cannot do already.
Should you be looking for grants?
If you’re clear that your organisation definitely needs money from somewhere, the next question you need to consider is whether you’re looking for an investment or grant, or a blend of the two.
The rise of social investment in the UK does not necessarily mean that it’s easier to get an investment in your organisation than it is to get a grant.
Some charitable and community activities will never be trading enterprises and can only be funded by grants or donations . In other cases, you may have the long-term aim of turning an activity into a sustainable trading enterprise but grant funding may still be a better way of supporting what you’re doing right now. There’s no point looking for investment if you don’t have a clear idea about how (and when) you will be able to pay it back.
What can investment offer?
Despite the obvious advantages of grants, there are also some reasons why taking on an investment alongside a grant or instead of one may sometimes be in the long-term interests of your organisation.
Investors are likely to be more flexible than grant funders about what you do. They are also more likely to want to get actively involved to support your organisation. This can be useful, especially for start-ups. Social investment tends to be less restricted to particular projects and outcomes than conventional grant funding, giving your organisation freedom to use it most effectively; it can also mean less distraction chasing grants. It can also help organisations increase their effectiveness through requiring them to improve their financial and business processes, and to be very clear on their priorities and objectives.
Can you borrow from a mainstream lender?
High street lenders can often offer better rates because of the scale of their operations. Keep in mind that these lenders will only be interested in your financial performance and might not understand 'socially motivated' businesses very well.
Why choose social investment?
Social investors are motivated by the same things you are - they understand your business model and are more likely to be supportive if things go wrong. You might want to make a conscious decision to support the social finance industry as part of your way of working and most importantly might not be able to access mainstream finance.
Get the guide
The social investment guide tells you more about how social investment can contribute to your funding mix.