Types of Social Investment | Borrowing and Equity | Good Finance

Types of social investment

Types of social investment

Types of social investment

Third Space Learning

There are two main types of social investment

1. Borrowing (debt)

Taking out a loan which you agree to repay over a set period of time. Most debt investments are paid back with interest - a fee you pay to the investor for the use of their money. For example, an investor loans your organisation £10,000 and you repay a total of £11,000 at £229 per month over 4 years.

2. Shares (equity)

Selling shares in your organisation to an investor. Equity investors receive a share of any profits paid out by the organisation and get to have a say in how the organisation is run. For example, an investor pays £10,000 to own 10% of your organisation.

Specific types

Explore specific types of social investment 

Use our tool below to explore specific types of social investment funding

  • Borrow

    Blended – part grant, part loan

    A package of funding that is a mixture of investment, that needs to be repaid and a grant that doesn’t need to be repaid. For example, a grant of £20,000 alongside a loan of £50,000 that needs to be repaid over 5 years with 10% interest.

    borrow
  • Borrow

    Charity bonds

    A tradable loan from a group of social investors to a charity or social enterprise over a fixed period of time with a fixed rate of interest. For example, if you issued a £2million bond over 5 years at 2% interest in 2017, you would pay the social investors £40,000 interest each year and repay the £2million in 2022. 

    borrow
  • Shares

    Community shares

    A withdrawable, non-transferrable equity investment into a cooperative or community benefit society. It is a form of equity because the investors get a share of the organisation.

    shares
  • Other

    Crowd-funded investment

    An investment that is raised via an online platform and not secured against an asset (a building or equipment). A ‘crowd’ of individual investors put (mostly) small amounts towards a loan to your organisation and you repay it on an agreed basis, usually with interest on top.

    other
  • Shares

    Equity investment

    An investment in exchange for shares in your organisation. For example, an investor pays £10,000 to own 10% of your organisation. Equity investors receive a share of any profits paid out by your organisation and get to have a say in how it is run, proportionate to the amount they invest.

    shares
  • Other

    Quasi-equity

    An investment that reflects some of the characteristics of shares but without your organisation offering up equity. Rather than paying back a set amount each month, your repayments are typically based on the performance of the organisation – such as profits or income. For example, you receive an investment of £50,000 and agree to pay the investor 2% of your annual income for 5 years.

    other
  • Borrow

    Secured loan

    An investment that works like a mortgage on a house. An investor provides your organisation with a loan against an asset (often a building or equipment) as ‘collateral’. Alternatively, an organisation's parent company may offer its shares in the organisation as the collateral. You repay the loan on an agreed basis (e.g. regular monthly payments) usually with interest on top.

    borrow
  • Other

    Social Impact Bonds

    A Social Impact Bond (SIB) is a payment-by-results contract where social investors pay for your organisation to deliver a service – for example, helping homeless people to find a home – and the Government repays the investors with interest if the service is successful. 

    other
  • Tool

    Social Investment Tax Relief

    Social Investment Tax Relief is a tool that can be used in combination with other products.

    A tax break for individual investors into charities and social enterprises. Investors get 30% of the cost of their investment off their next income tax bill so, provided certain conditions are met, if an investor makes a £100 investment into your organisation, they can claim £30 back. Investors can’t sell their shares or have their loan repaid for 3 years, although they can receive interest on loans.

    tool
  • Other

    Social property funds

    Funds managed by a specialist firm, who raise money from investors, and then use the funds to buy property that can be used by a charity to deliver its services. The charity leases the property from the social property fund. 

    other
  • Borrow

    Unsecured loan (incl. overdrafts)

    An investment that is not secured against an asset (a building or equipment). An investor provides your organisation with a loan and you repay it on an agreed basis, usually with an agreed amount of interest on top.

    borrow

Here are some other funding options you might want to consider

Accelerators, incubators and challenges

Early-stage investment and support – including training and office space – for business ideas that have the potential to scale. Many social accelerators and incubators are focused on ‘Tech for Good’ businesses seeking to use digital technology to make a positive social impact.

Reward-based crowdfunding

Donations from lots of people who support what your organisation is doing, given in exchange for ‘rewards’ which can range from a thank you on your website, to merchandise such as branded bags and t-shirts, to the actual product you are raising money to develop.

Friends and family

Financial support from people you know or who support you personally. For example, three friends/family members loan you £10,000 between them to get your organisation up and running. 

Grants

Money paid to you to carry out a specific project (restricted grant) or to generally support your organisation’s work (unrestricted grant).

Conventional finance

Conventional finance – including high street banks – offers many of the same products available from social investors with the key difference being that the investors do not have a social motivation to their investment. Mainstream banks may also offer you an overdraft facility – an agreed amount of loan finance that is available to manage your cash flow when you need it.

Reserves

Money that your organisation has in the bank as a result of making profits or generating surpluses.

Who are the investors?