Increasingly, organisations are required to fund the development of growth strategies or programmes needed to deliver contracts, with income coming once delivery has started, often on a payment by results basis. Many charities and social enterprises without significant reserves struggle to access loans to fund this investment unless they have security (a tangible asset, such as a building) to offer to the lender.
The Third Sector Investment Fund aims to address this by providing unsecured loans of between £250,000 and £3 million to charities and social enterprises which can demonstrate increased social impact as a result of having received such funding. Loans are focused on supporting organisations that work with marginalised, excluded or vulnerable individuals and groups.
Social Key Performance Indicators are agreed with each investee as a way to evidence progress against social outcomes over the life of the investment. Indicators are set in a collaborative manner with investees and include quantitative and qualitative information. Data relating to direct outcomes, wider impact and alignment will be collected over the life of the fund. In time, the fund will produce a regular impact report. The Fund will learn from the data, using it to inform future investment decisions, and draw conclusions about investments into organisations with similar social aims.
The fund is managed by Social and Sustainable Capital (SASC), has a 10 year life and combines investment from the Social Investment Business Foundation, Big Society Capital and Santander. The three investors will pool their money in different investment tranches with different risk/return profiles.
Accessing finance without providing security was viewed as a significant barrier for many organisations. The fund significantly increases the amount of risk capital available to charities and social enterprises.
The innovative fund structure will provide key data around the use of catalytic first loss capital, which in this case was provided by the Social Investment Business Foundation. The Third Sector Investment Fund is pioneering a model designed to encourage banks and other mainstream institutions to invest in funds which finance charities and social enterprises. Santander has committed £13.5 million, believed to be the biggest single investment by a mainstream UK financial institution into a third party fund lending to social ventures.