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We realise that terminology can be confusing, and especially so in an emerging field such as social investment. As the market grows and becomes more standardised, the terminology will be better understood. In the meantime, this glossary provides some insight and helps reduce confusion. It is not intended to be definitive.


Asset: a financial benefit recorded on a balance sheet. Assets include all properties, both tangible and intangible, and any claims for money owed by others. Assets can include cash, inventories, and property rights. Tangible assets are those that have a physical form such as buildings, equipment and vehicles.


Balance sheet: a "snapshot" of the assets and liabilities of an organisation at a single point in time.

Bond: a formal contract to repay borrowed money with interest at fixed intervals. A bond is like a loan. The holder of the bond is the lender, the issuer or seller of the bond is the borrower, and the coupon is the interest. The seller of the bond agrees to repay the principal amount of the loan at a specified time (maturity).


Capital: capital usually refers to financial capital or money, and in particular the amount of cash and other assets held by an organisation.

Capstone investor: the final investor in a fund or a project whose investment secures the other investments and enables the fund or project go ahead

Cash flow: a cash flow forecast shows the total expected outflows (payments) and inflows (receipts) over the year, usually on a monthly or quarterly basis. It is an essential tool for understanding where there will be shortages and surpluses of funds during the year and planning for ways to resolve these.

Co-investment: investment in a project or fund alongside and often on the same terms as other investors.

Community development finance institution (CDFI): an organisation that provides affordable loans and support to businesses, social enterprises and individuals who struggle to get finance from high street banks and loan companies.

Cornerstone investment: the principal investor in a fund or project whose commitment to invest gives confidence to others to invest.


Debt finance: investment with the expectation of repayment. Debt finance usually takes the form of loans, both secured and unsecured, as well as overdrafts and standby facilities. Generally these require a borrower to repay the amount borrowed along with some form of interest, and sometimes an arrangement fee.

Development capital: enables organisations to invest to build capacity, for example by purchasing property or other assets, or developing new products and services.


Equity investment: investment in exchange for a stake in an organisation, usually in the form of shares. Each share represents ownership of a proportion of the value of the company. Equity finance is permanently invested in the organisation which has no legal obligation to repay the amount invested or to pay interest. Equity investors expect to receive dividends paid out of the organisation’s earnings and/or capital gain on the sale of the organisation or on selling their shares to other investors.


First loss: it is possible to have different tiers of investors so that one set of investors accepts that it will lose the money it invested before any of the other investors lose any money. This investor will bear the ‘first loss’.

Fund: a collective investment scheme that provides a way of investing money alongside other investors with similar objectives. This provides individual investors with access to a wider range of investments than they would be able to access alone and also reduces the costs of investing through economies of scale. Funds are managed by fund managers for a management fee on behalf of investors.


Grant: a conditional or unconditional gift of money with no expectation of a financial return.


Liability: a financial obligation or debt to another party entered in a balance sheet.

Loan: a sum of money which is borrowed and has to be paid back, usually with interest.


Overdraft: borrowing limits agreed by the bank where a charity or social enterprise has its current account. An organisation can borrow when it needs funds rather than in one lump sum. Interest is usually paid on the amount of money that is borrowed until it is repaid and rates are usually higher than for standard loans.


Patient capital: loans or equity investments offered on a long-term basis (typically 5 years or longer) and on soft terms (e.g. capital/interest repayment holidays and at zero or sub-market interest rates).

Profit and loss account: also known as an income and expenditure account, it shows income earned for the year and deducts from it all expenses incurred in earning that income. This will show a profit (surplus) or loss (deficit) for the year, depending on whether income is larger than expenses or expenses have exceeded income.


Quasi-equity investment: a hybrid of equity and debt investment. Equity investment may not be possible if an organisation is not structured to issue shares. A quasi-equity investment allows an investor to benefit from the future revenues of an organisation through a royalty payment which is a fixed percentage of revenue. This is similar to a conventional equity investment, but does not require an organisation to issue shares.


Restricted funds: funds (often grants) that can only be used for a specific purpose or project and cannot be used for other purposes. These can also be referred to as ring-fenced or earmarked funds.


Secured debt/loan: a loan that is backed by property (in the case of a mortgage) or assets belonging to the borrower. This may be the property or asset that is being bought with the loan itself, or other assets held by the organisation. If an organisation defaults on its debt, the lender can sell the asset to recoup, in full or in part, its loan.

Senior debt/loan: debt that takes priority over other unsecured or otherwise more junior (or subordinated) debt. In the event that the borrower organisation is wound up, senior debt theoretically must be repaid before other creditors receive any payment.

Social enterprise: a social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.

Social impact: There is no one definition of the term or concept, but social impact can be defined as the effect on people that happens as a result of an action or inaction, activity, project, programme or policy. The 'impact' can be positive or negative, and can be intended or unintended, or a combination of all of these

Social Impact Bond: a form of outcomes-based contract in which public sector commissioners commit to pay for significant improvement in social outcomes (such as a reduction in offending rates, or in the number of people being admitted to hospital) which deliver a saving to the public purse. The expected public sector savings are used as a basis for raising investment for prevention and early intervention services that improve social outcomes. Social Impact Bonds are not bonds in the conventional sense. While they operate over a fixed period of time, they do not offer a fixed rate of return. Repayment to investors is contingent upon specified social outcomes being achieved. Therefore in terms of investment risk, Social Impact Bonds are more similar to that of an equity investment.

Social investment: the provision and use of capital to generate social as well as financial returns.

Social investment finance intermediary (SIFI): an organisation that provides, facilitates or structures financial investments for social sector organisations and/or provides investment-focussed business support to social sector organisations.

Social investment wholesaler: an investor which makes larger investments in funds or financial organisations (social investment finance intermediaries) that will themselves invest smaller amounts in a number of frontline social sector organisations.

Social sector organisation: an organisation that exists primarily to deliver social impact; that reinvests the majority of surpluses to further its social mission; and that is independent of government. The social sector includes voluntary and community organisations, charities, social enterprises, cooperatives and mutuals. The social sector is also referred to as the third sector.

Standby or revolving credit facility: usually provided in the form of a loan where money can be drawn down over a certain period of time when an organisation needs it (if budgeted income does not materialise), rather than as one lump sum. Interest is charged only on the funds drawn down. This is similar to an overdraft.

Subordinated or junior debt/loan: Debt which is ranked after other more senior debt. In the event that the borrower organisation is wound up, subordinated debt will be paid only after other senior creditors have received payment. This is riskier investment for a lender and is therefore typically lent at a higher interest rate than senior debt.


Underwriting: a commitment, for a fee, by a lender or investor to provide financing if other sources fail.

Unrestricted funds: funds that can be used however and wherever an organisation needs to further its objectives.

Unsecured loan: a loan that does not take security over an organisation’s assets. Because the risk for the lender is greater, interest rates are usually higher than for secured loans.


Working capital: finance used to manage the timing differences between spending money and receiving it (income and expenditure).