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Busting 6 myths about Social Investment

In this post, we bust 6 social investment myths we hear time and time again from our users!

We’ve spoken to many social enterprises and charities wanting to understand more about social investment. Our consultants have many years of experience and often hear the same pre-existing misconceptions. So we’re here to challenge them, bust those myths and give you our trusted social investment information. We thank our friends at Good Finance for their inspiration and help with this list.

Myth 1: “Social investors are inflexible and difficult to approach if you can’t meet the repayments”

There is a common misconception that social investors are unapproachable, scary and won’t understand the financial struggles of frontline-facing organisations. In reality, the vast majority of social investors are themselves charities or social enterprises!  

Time and time again we hear from charities and social enterprises that have developed fantastic relationships with their investors. Honesty is always the best policy, and your investor can’t help you if they don’t know your issues.

LARCH is a project of the charity VONNE and we aim to develop strong relationships with our clients and in turn their investors who form our partnership.

Myth 2: “Social investment is benevolent money and should be cheaper”

Any social investor making loans expects to lend, and then be repaid. The aim is to cover the cost of lending and any default payments which means the money can be recycled and lent again.

If you have enterprising activity and a trading income, social investment could be a viable way to help you achieve the impact you are trying to deliver for the communities you serve, but you will pay a return for using the money.  

Myth 3: “Social investment is just for buying assets”

Many people think social investment is just about buying buildings or ‘things’ like a van or equipment. They don’t realise it can be used as a loan when taking on a contract.

Say for example you’re bidding for an NHS or government contract but won’t be paid upfront, only gradually month by month, or at the end. But you need the money (also known as ‘working capital’) early on to make the investment to deliver that contract. That’s where social investment can help. The money can be loaned to you at the start, then repaid over a longer period to allow you to deliver the contract successfully.

Take a look at the Really Neet Project in Rotherham which used a grant/loan mix for working capital. This allowed them to “…bridge crucial times when cash flow or reserves had not been there. The stability in the bank account has allowed us to grow.”

Myth 4: “The process of applying for social investment is complicated and unnecessary”

Taking on social investment is a bit of a journey – from establishing what you need for your organisation to finding the right investor, to actually getting money in the bank account, there are several steps to take. 

One that often scares people is due diligence. Whilst due diligence isn’t fun, it does make your business better. Social investors always aim to help you to future-proof your business plan, and it’s because they want you to succeed.

All of the planning procedures and processes – as lengthy as they may be – will make your organisation more resilient in the long run. LARCH is here to help with this, just come and talk to us!

Myth 5: “Social investment is only suitable for organisations wanting to borrow large amounts of money”

Many believe social investment is only for larger organisations looking to borrow hundreds of thousands, if not millions, from investors, but did you know the average first-time demand amount is £50,000?

In fact, there are lots of examples in this collection of over 100 UK case studies of smaller organisations taking less than this. There are various ways social investment is used, but if you turn to repayable finance to kick start your organisation or maintain cash flow, you won’t always need the big bucks.

Myth 6: “There’s nothing out there to help me better understand the social investment process…”

Come and talk to LARCH! Whether that’s at one of our regular events, workshops or one-to-ones, we’re here to help.

Or there is a whole host of online tools and resources available, from our friends at Good Finance. Here are just a few…

–          The Is ‘It Right for Us’ tool
–          The Outcomes Matrix
–          Fundmapper tool
–          Cost of Capital Calculator
–          Jargon Buster

They also have lots of engagement activities for those interested in learning more, including events, podcasts, blogs, videos and a free e-Learning course entitled Social Investment Unpicked.

Aside from Good Finance, there’s also other organisations on hand to help you better navigate the wonderful world of repayable finance.

Keyfund’s Enterprise Toolbox:
You have the idea, you’ve established there’s a need for your enterprise, but what comes next? This Enterprise Toolbox is full of practical templates and toolkits to guide you, alongside expert advice to inspire.

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