Social investment – why the hype may be unjustified…

 

 

Ruby Star Associate – Adrian Ashton explains…

 

I was able to make it along to this year’s “Working Capital” conference that was recently staged in Sheffield – a day to immerse myself in reflecting, arguing, sharing, and further exploring the wonderful world of ‘social investment’.

Depending on who you speak with within either the social enterprise movement, city banks, or politicians, Social Investment is either the next big thing (and has been for a few years...); is a market that’s suffered failure in the past and needed interventions from government; or a smoke screen for covering the cuts to grants that sustain many charities and social enterprises as some might argue and feel…

However, reflecting on the speakers, conversations, and my own experiences of supporting a number of social enterprises within various initiatives to encourage more uptake of Social Investment, I’d suggest that if we talk about Social Investment we should do so with several large ‘pinches of salt’:

  • most of the current Social investment in the form of loans and debt is either too expensive (double digit interest rates), or not patient enough (investments needing to be repaid in full within 5 years);
  • there’s a common practice amongst ‘traditional businesses’ to ‘refinance’ a loan: if you’ve no history of repaying debts it can be hard to borrow money anything less than very expensive terms, but once you start to, you can flip your loan to another lender on better terms…

So what’s to stop social enterprises getting what seem initially expensive loans in comparison with the high street banks who see them as being too risky, showing they can manage repayments, and then transfer the loan to their high street bank on better terms? This might not seem too big a leap when you also consider that the things that are important to those seeking investment (quick decision, affordable terms, flexibility), are the same as for any other type of organisation in any sector seeking a loan.

But this theme of ‘social investment’ is also mirrored in the wider ‘alternative finance’ movement, with firms starting to lend to each other, and companies using advance payments received against future sales to support their cash flows, to name but 2 examples. NESTA undertake regular national surveys of this social and alternative finance, and I’d suggest anyone who may be interested in exploring raising finance in a non-high street bank way should look to these as a starting point for understanding and exploring the range of options.

 

But ultimately, just as every enterprise is different in how it brands itself, and what it offers, it should also take time to consider what the best way to finance itself should be. Social Investment offers a range of creative ideas, but so does ‘alternative finance’, and what’s right for others may not be right for you.

 

Link reference: http://www.nesta.org.uk/news/new-research-shows-uk-online-alternative-finance-market-grew-ps32-billion-2015

 

 

You can find out more about Adrian & the work he does over on his blog & find him on Twitter

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