7 tips for small charities exploring social investment

The theme for this year’s Small Charity Week is financial resilience and it’s no surprise that it’s on people's minds.

For small charities, it’s a tough climate. Grants are harder to come by, local authority contracts are drying up and the cost of living is squeezing budgets and stretching teams thin.

But it’s not all doom and gloom.

At Good Finance, we’ve noticed a shift. More small charities than ever are exploring different ways to bring in income. One route more and more people are curious about is social investment.

It’s not the right route for everyone. But it’s far better to explore your options than to miss out on something that could help you increase your impact. We’ve pulled together seven practical tips to help you get started.

These will demystify what social investment is (and isn’t), challenge a few common myths and point you to useful tools and stories from others who’ve been there.

Social investment is not free money

Let’s start by being clear on what social investment isn't. It’s not a grant. It’s not a gift. It’s money that you borrow, usually with interest, and then pay back over a set period of time.

Do you have an income stream? Or could you create one?

This could be something like trading, room hire, consultancy services, or anything else that brings in unrestricted income.

The cost of social investment varies depending on who you borrow from, the type of product, how long you borrow for and a few other factors.

But the key takeaway here is that it’s not free money. You need to be confident you can repay it.

Get to grips with the basics

If this is your first time hearing about social investment, don’t panic. You don’t need a financial qualification to get to grips with the basics.

At Good Finance, we’ve worked hard to remove the jargon and make the process as straightforward as possible.

We’ve got loads of jargon-free tools and resources to help you make sense of it all:

• The Knowledge Hub breaks down key concepts in plain English

• Is It Right For Us? is a simple quiz to help you assess fit

• The Investor Directory lets you search by type, location and more

• Our E-learning Hub gives you short, focused modules to build your confidence

  
  

Worst case? You walk away with a better understanding of how this type of funding works. Best case? You find a new route to support your mission. What’s not to like?

Learn from successful examples

One of the most common bits of feedback we hear is that people want to see real examples, not just theory. That’s why our case study library is such a popular resource.

We’ve got over 120 stories of charities and social enterprises using social investment in different ways. They show the amount borrowed, loan terms, costs, legal structure and more.

Some recent examples:

• Rose-Tinted Financial Services 

• Lighthouse Pedagogy Trust 

• The Ledge.

  
  

You can also watch peer speakers share their experience at our events – many are available on demand.

Expect honest, warts-and-all reflections.

Tap into your network

The third sector is brilliant at sharing insight and cheering each other on and this is no exception.

Reach out to peers. Ask who’s been through the process. See if they’d be willing to have a quick chat or make an intro to an investor they’ve worked with. A 15-minute coffee with someone who’s done it can save you hours of Googling (and possibly a few grey hairs, too).

Start early: it always takes longer than you think

Social investment can take time.

How long depends on lots of things, some in your control like having your business plan ready and financials in good shape, and some out of your hands like investor timelines and how often their committees meet.

Getting started early gives you breathing room. And if you’re the kind of person who likes to feel prepared, our E-learning Hub includes masterclasses on due diligence and legal structures to help you hit the ground running.

Or as my dad always says: fail to prepare, prepare to fail.

Impact really does matter

People often ask: what makes a social investor different from any other lender?

The answer’s simple. They care about your impact. They want their money to do good, not just once, but over and over again. That’s why they lend it out, get it back with a small return, and then lend it again.

It also means they tend to understand what it’s like working in the voluntary sector. Charity leaders often tell us that their investor 'got it'. They didn’t need to over-explain why their work mattered. In many cases, they got extra support and flexibility when things didn’t go to plan.

At its best, this isn’t just a transaction: it’s a partnership.

Getting started

Has this blog tickled your fancy and now you’ve got a burning fire of desire within you that’s desperate for more?

Perhaps a stretch, but the good news is there’s free resources available for those interested in finding out more.

The NCVO social investment hub is the best place to start, and is packed with practical advice and resources, including direct links to the best tools on Good Finance and elsewhere in the sector.

It’s all free. No commitment. Just honest, accessible guidance to help you work out if this could be part of your charity’s financial future.

And if you’ve got questions or want to talk something through, the Good Finance team is always happy to help.

Annie Constable is a Senior Digital Content Manager at Good Finance, a collaborative project that helps charities and social enterprises to navigate the world of social investment.

They provide a number of tools and resources designed to make your life easier, alongside all the information you need to make an informed decision on the future financing of your charity.