How to…use social investment to grow your social enterprise

Once your social enterprise is established and sustainable, you might start thinking about growing. Growth isn’t for everyone. There’s no shame in staying small and focused. But for many social entrepreneurs, scaling is a way to increase their impact.

One way to fund that growth is through social investment.

Social investment isn’t a grant. It’s not “free money”. It’s finance that you pay back, usually with interest. You take it on because it helps you grow your impact faster or in a more sustainable way.

This guide explains what social investment is, the main types available, when it might be right or wrong, and what to consider before going ahead.

What is social investment?

Social investment is repayable finance used to achieve both a financial return and a social or environmental impact.

Instead of giving you a grant, a social investor lends money that your organisation pays back over time, usually with interest. In return, they want two things:

• To get their money back (with interest)
• To see a positive impact for people or communities

Social enterprises and charities that might be too risky for high-street banks can sometimes access finance from social investors. This can open up funding that wouldn’t otherwise be available.

When social investment might be right, and when it’s not

It might be a good fit if:

• You have a trading model or a clear plan to build one
• You expect to earn enough to pay the money back
• You’ve got a specific growth opportunity such as opening a new site, hiring staff, investing in equipment or bridging cashflow
• Grant funding isn’t available or doesn’t cover what you need

It’s probably not right if:

• You don’t have a way to repay the money
• Your cashflow is unpredictable and hard to model
• You’re mainly covering ongoing core costs, with no clear path to income growth
• Your board or team are uncomfortable with taking on debt

Think of social investment as one option in a wider funding mix. Grants, donations, contracts, income from trading and reserves might all play a role too.

Types of social investment

The right kind of investment depends on your organisation’s structure and business model. Here are some of the most common types:

1. Loans

You borrow a sum of money and pay it back over time, with interest.

• May be secured (against assets) or unsecured
• Repayments might be fixed or flexible

2. Equity (for share-based structures)

Investors buy shares in your organisation. They get a return through dividends or increased share value.

• Not suitable for charities
• Can work for some CICs limited by shares or profit-with-purpose businesses

3. Quasi-equity or revenue participation

You repay based on a share of your income over time, rather than fixed monthly payments.

• Works well if income is seasonal or unpredictable

4. Overdrafts and working-capital facilities

Helps with short-term cashflow. Useful when you’re waiting to be paid for a contract.

5. Outcomes-based contracts (e.g. social impact bonds)

You’re paid based on the social outcomes you achieve, not just what you deliver.

• Complex and usually for experienced organisations working at scale

Where to find social investors

You can start here:

• Good Finance – tools, case studies and an investor directory
• NCVO – helpful overview of different investment types
• Look for CDFIs (community development finance institutions) and other social investment funds listed on those sites

How social investors think

To improve your chances, it helps to understand what social investors care about:

1. Your impact

• What social or environmental problem are you tackling?
• Who benefits, and how do you measure change?

2. Your business model

• How do you earn income?
• How predictable and resilient is it?

3. Your ability to repay

• Can you afford repayments, even in a tough year?
• What does your cashflow forecast show?

4. Your leadership and governance

• Who’s on your board and leadership team?
• Do they have the skills to deliver the plan?

5. Your risks

• What could go wrong, and how will you handle it?

Being clear and realistic in these areas will make investor conversations much more productive.

What to get in place before applying

You don’t have to be perfect. But investors do need to trust that you can handle repayable finance.

Here’s what to get ready:

• A clear strategy and growth plan
• Your latest accounts and cashflow forecasts (one to three years)
• Evidence of demand for your product or service
• A clear impact story – who you help and how you know it works
• Good governance – a functioning board, clear roles and key policies

Questions to ask before going ahead:

Ask these questions with your board or leadership team:

• What exactly do we need the money for?
• Why social investment, and not a grant or loan from a bank?
• How will this help grow our impact, not just our size?
• Can we make repayments even in a challenging year?
• What are the risks, and are we OK with them?
• How will this affect our team and the people we support?
• Are there conditions attached, and are we happy with them?

If you can’t confidently answer these, you might need more time or support before applying.

The social investment journey

Getting social investment is rarely quick. Allow time and capacity. The process usually includes:

1. Exploring whether it’s right for you
2. Initial conversations with investors
3. Submitting a proposal with forecasts and impact info
4. Due diligence (they dig into your finances, governance and risks)
5. Legal agreements (if successful)
6. Post-investment reporting and support

If you’re considering social investment, take it step by step. Start by being clear on the problem you are trying to solve, the growth opportunity you want to fund, and the income you will use to repay it. Talk to a few investors early, test your assumptions, and get your forecasts and impact story into good shape before you apply. Done well, social investment can be a useful tool to help you grow your organisation and your impact. Done too soon, it can add pressure and risk. The aim is not to “get investment” for its own sake, but to choose the right finance for the right moment, on terms your organisation can comfortably carry.