Phil Caroe, Director of Social Finance at Allia, with a tongue-in-cheek guide to help us navigate the language barriers to considering finance.
Jargon is a social divider, separating the knowledgeable insiders from the confused outsiders. Now, with this bluffer’s guide, you too can impress your sector colleagues and show that you’re in the know.
Money that has been provided to you to use which you’ll need to return on certain terms at some time in the future. But why use phrases this simple when you could use more sophisticated ones?
Finance that an organisation uses to deliver or expand its services. Also in certain British circles an expression meaning ‘tip top’.
Money you borrow and commit to paying back on specific terms. Often associated with negative concepts of ‘getting into debt’.
Capital that is raised through borrowing on fixed terms to help organisations deliver and grow. Exactly the same as debt but without the negative vibes.
A way of raising loan finance from lots of different investors at once, where the investors all share the same terms and the same risk (n.b. ‘social bonds’ not to be confused with ‘Social Impact Bonds’ which might give the impression of being bonds but, in fact, are not).
A kind of annual hire charge when you borrow money. Don’t mistake ‘level of interest’ for how enthusiastic your investors are.
Think of these like the terms of a grant that describe the circumstances in which you’d need to repay the money. A loan will have similar terms and conditions, except that ‘covenants’ sounds much grander.
Capital raised when investors buy a right to a proportion of a company’s future profits. This means, unlike debt, companies only pay investors if they are successful. Generally considered a vital tool for growth of early-stage companies. Unfortunately also generally unsuitable for charities and vast majority of social enterprises in the UK.
Equity Quorn. Designed to taste like equity but actually a kind of debt where the amounts and timing of interest due or the repayment of the loan depend on certain agreed financial (and occasionally social impact) performance measures.
There’s no consensus on what this really means. But who cares about definitions? Used with confidence it can show you to be at the cutting edge of the sector and earn you the coveted title of ‘Innovator’.
But in all seriousness…
Words have power. They can excite us and they can intimidate us. They can carry associations, evoking all sorts of feelings and beliefs so that what is heard isn’t always the same as what is meant. They can also be used as signals, whether consciously or unwittingly, about our social status and intelligence.
I wasn’t surprised therefore that language was identified as a key barrier to considering investment in the user research for Good Finance. Learning how to communicate effectively is always essential in relationships. Sometimes that involves both sides making effort to learn each other’s language (rather than just expecting everyone else to learn ours, as we Brits tend to do). But it also means taking care to use simple, plain English wherever possible.
And perhaps ‘social investment’ is the first piece of jargon we all need to review. I have a suspicion that this label might actually be one of the biggest hindrances to more charities and social enterprises considering ‘social investment’. After all, it’s difficult to embrace a concept if nobody is really clear about what it means.
So if we’re just talking about organisations borrowing money to grow services and generate more income, then please, do we really need the jargon that implies it’s something new and unique? It’s not, it’s just borrowing. It’s what organisations have been doing for thousands of years.
By Phil Caroe, Director of Social Finance, Allia
Editor’s note: definition and wording seem to be the eternal thorn. We understand that we will never get everyone in the sector to agree, which is partly why a user-centred design approach has been such a useful methodology. What the Good Finance partners all agree on is that the user research should direct us - that straight-forward talking, defining jargon early on and not dressing up social investment as anything other than another form of repayable finance is the correct approach to take.