In this post, we bust 7 social investment myths we hear time and time again from our users!

Good Finance turns five this April, and in that time, we’ve spoken thousands of social enterprises and charities that want to understand more about social investment. 

We often find ourselves challenging the same pre-existing misconceptions, and so true to our mission of being the trusted source of social investment information, we’re busting those myths once and for all!

7 Myths About Social Investment

1.       “The social investment market is London-centric”

An age-old myth that continues to plague the social investment sector is that it’s only designed for organisations based in the capital. Whilst there is a lot of social investment activity happening in London, there are also some great regional investors and funds - check out our Fundmapper - and you can absolutely take on social investment from all over the UK. 

You only need to browse our recent case studies to see that deals are made in every corner of the UK – and everywhere in between!

We’re always on the lookout for more organisations to help us disprove this falsity, so if you’re a social investee, from quite literally anywhere else, submit a case study so that we can share your story to inspire organisations in your local area.

2.       “Social investment/cost of capital is too expensive”

Social investment can sometimes be more expensive than other forms of capital, and at Good Finance we always encourage users to explore all the options out there! People will sometimes dismiss social investment as an option because it’s perceived to be too expensive. It’s important to remember that the cost of borrowing is directly related to the level of risk being taken by investors.

Social enterprises or charity business models are often considered ‘high risk’ so while mainstream commercial lenders may advertise favourable rates, they aren’t always available for third sector organisations.

In addition, the duration of the loan being offered can affect affordability just as much as cost of capital, if not more so. For example, a £50,000 loan over three years at 6% would mean monthly repayments of £1521.10, whereas the same amount and interest rate over six years would almost half the monthly repayments, at £828.64.

There are so many different social investors out there, all offering varying interest rates, so compare deals using the Cost of Capital Calculator before ruling it out on financial grounds. As one social investee puts it: “I had to kiss a few frogs before I found my social investment prince!”  

3.       “Social investment is benevolent money and should be cheaper”

In contrast to the previous myth, social investment is definitely not grant money of benevolent capital.

You won’t need us to tell you that free money is always likely to be the top choice for charities and social enterprises, providing you qualify for the grant criteria and have the resources available to apply.

Any social investor making loans expects to lend, and then be repaid. The aim is to cover the cost of lending and any default payments which means the money can be recycled and lent again.

If you have enterprising activity and a trading income, social investment could be a viable way to help you achieve the impact you are trying to deliver for the communities you serve, but you will pay a return for using the money.  

4.       “Social investors are inflexible and difficult to approach if you can’t meet the repayments”

There is a common misconception that social investors are unapproachable, scary and won’t understand financial struggles of frontline facing organisations. In reality, over 85% of the social investors listed in the Good Finance directory are themselves charities or social enterprises! 

Time and time again we hear from charities and social enterprises that have developed fantastic relationships with their investors. Honesty is always the best policy, and your investor can’t help you if they don’t know the issues you’re facing.

Here’s a quick video of social investees talking about the relationship they have with their investor.

5.       “The process of applying for social investment is complicated and unnecessary”

Taking on social investment is a bit of a journey - from establishing what you need for your organisation to finding the right investor, to actually getting money in the bank account, there are several steps to take. 

One that often scares people is due diligence. Whilst due diligence isn’t fun, it does make your business better. Social investors always aim to help you to future-proof your business plan, and it’s because they want you to succeed.

All of the planning procedures and processes – as lengthy as they may be – will make your organisation more resilient in the long run.

 6.       “Social investment is only suitable for organisations wanting to borrow large amounts of money”

Many believe social investment is only for larger organisations looking to borrow hundreds of thousands, if not millions, from investors, but did you know the average first time demand amount is £50,000?

In fact, there are lots of examples in our collection of case studies of smaller organisations taking less than this. There are various ways social investment is used, but if you turn to repayable finance to kick start your organisation or maintain cash flow, you won’t always need the big bucks.

7.       “There’s nothing out there to help me better understand the social investment process...”

Here at Good Finance, we certainly beg to differ! We have a whole host of online tools and resources available on our site, including…

-          The Is ‘It Right for Us’ tool
-          The Outcomes Matrix
-          Fundmapper tool
-          Cost of Capital Calculator
-          Jargon Buster

…to name a few! We also have lots of engagement activity for those interested in learning more, including events, podcasts, blogs, videos and a free e-Learning course entitled Social Investment Unpicked.

Aside from Good Finance, there’s also other organisations on hand to help you better navigate the wonderful world of repayable finance. If you have any more social investment-related questions, check out our FAQs page.