For Small Charity Week we’re celebrating the contribution that small charities make to all our lives. 97% charities have income less than £1m and an important focus of our work is on how social investment can be a useful tool for them.
I think there’s been a real shift in social investment’s relevance over the past few years. That’s why we continue to be enthusiastic about spreading the word so more small charities benefit, through great partners including Small Charities Coalition, local CVSs and NAVCA, NCVO and Reach Volunteering.
4 challenges being busted about social investment for small charities
Here are some of the challenges we hear for small charities considering social investment...Hopefully some of these are myths that are on the way to being busted!
Challenge 1: Social investment is only available for large amounts
There are now more options for small charities. For instance, there is increased availability of loans under £150k through the Access Foundation’s Growth Fund, which invests in local and national funders who then lend to charities and social enterprises.
Data shared by Access shows that the investments made are reaching small organisations intended to benefit. It also shows: the average loan size made is £62,000; organisations receiving investment have median income of £239,000 and the average number of employees of investees is 6.
Social Investment Tax Relief (SITR) is another option. SITR provides smaller organisations with the opportunity to unlock investment from individuals, potentially taking greater risk than other sources of investment. The small charity trailblazers who have already benefitted from the relief are varied in purpose and geography from Fareshare South West (with investment from Resonance) tackling food poverty to Portsoy Community Enterprise running a boat festival and a host of offerings for the local Scottish community (with investment from Social Investment Scotland). And we think there are far, far more that could benefit (potentially 30,000 charities).
Challenge 2: Social investment is only used for safe bets, backed by assets
Far from the examples of multimillion property investment deals that may grab attention in the sector, social investment is now being used for some of the core needs of smaller organisations.
Small charities such as Doorway, Nottingham Counselling Service and Direct Help & Advice are using unsecured loans for investment into fundraising capacity, digital capability and to support cash flow during the transition to a new operating model & structure. All of these examples are about placing small charities on a stronger footing for the future, with more diverse income sources & more sustainable services. They do this with financial and business support or advice from investors such as Key Fund, Homeless Link and others to get the right investment package for them.
Challenge 3: Trustees are too risk averse to consider social investment
Making a decision to take on repayable finance can be a tough call for trustee boards. This is especially the case for small charities where staff capacity is more limited and where their balance sheet may be more fragile. Of course, using investment will not be the right thing for many organisations. Yet we hear more examples of small charity trustees that are embracing risk as well as thinking ahead to the impact they want to achieve and how they can best secure their ability to deliver.
Lisa Hilder, a trustee of Preston Road Women’s Centre, which supports women in Hull affected by domestic violence has shared their trustee journey as part of our GET INFORMED campaign. It’s been fantastic to see their creativity, including setting up a social enterprise to provide affordable justice and embarking on the development of a new women’s centre. Much of this is founded on their initial decision to use social investment to build an income-generating asset base. This gave them freedom and confidence to deliver other services and projects as well as access further social investment (including from SASC).
Challenge 4: Treatment by social investors depends on who you are
Social investment is challenging itself to address similar issues around diversity as the charity sector. One aspect of this is whether access to investment is “fair” or reflects familiar inequalities around gender, race, disability and background. In the Social Investment Intelligence Network’s first report was a troubling observation that the experience of engaging with social investors varied on who is leading the work.
On the positive side, one of the highlights for me of the Growth Fund’s progress, has been the insights from Big Issue Invest’s experience of making small loans available together with a small amount of capacity building support from the Reach Fund. This has allowed them to engage more deeply with earlier stage or riskier proposals. It also allowed them to meet small charities needs’ based on the reality of their capability around investment whilst respecting their expertise in what they do. Big Issue Invest found that this has increased the diversity of leadership of their investees, including around gender and race.
If these challenges are starting to be addressed, what more is needed?
"The Value of Small" research launched this week by Lloyds Bank Foundation shows the distinctive value that small charities bring. It’s in this context that social investment needs to evolve so small charities can do more.
Examples of how this can be done include:
- Enabling small charities to connect more easily with the right support and funds available.
- Embedding repayable finance into the bigger picture of funding and finance, growth and diversifying income in training and support for charities
- To better share learnings and practical experiences of peers who are already using investment and shifting perceptions of what is possible.
Resources if you're a small charity
If you’re one of the many people around the UK helping to run a fantastic small charity, and would like to know more about whether your charity could benefit from social investment, take a look at these resources:
- Good Finance: a website designed with and for the sector to help navigate social investment with practical case studies.
- GET INFORMED: an information campaign to help decision makers be better informed of the risks & opportunities of social investment, with an offer of 1:1 free mentoring support.
- Lets Talk Good Finance: informal regional networks to allow charities to connect with peers, share experiences and hear from local and national funders.
- GET SITR: a campaign to help organisations explore how the Social Investment Tax Relief could unlock capital from individuals, with free support on offer. Check out the fab Breadshare video above for a simple and fun explanation!
And for organisations working with or supporting small charities...
If you would like to explore how the social investment resources above and other activities could help your work and increase the benefit provided to small charities, do get in touch.