Sources of funding in the social sector

Finance for sports clubs and community organisations has traditionally meant grant funding, commercial finance or shares

This finance has usually come from organisations with an interest in:

  • Physical activity or your specific sport, such as grant funding from us or sports foundations
  • Your location, such as Landfill community grants, place-focused trusts
  • Making a commercial return on the investment (repayable bank loans, equity finance).

In recent years, funding from the social sector has become more prevalent, both in the form of grants and investment. 

The difference, however, is that grant funding from the social sector will be typically focused on organisations that are primarily set up to deliver social objectives. Investment from the social sector, on the other hand, uses repayable finance (loans or equity) to achieve social impact as well as delivering a financial return to the investor.

Understanding social investment

Social investment is the use of repayable finance to achieve a social as well as a financial return. Charities and social enterprises can use repayable finance to help them increase their impact on society.

Watch the film below to find out more.

 

 

 

 

 

Good Finance is a website that can help you understand the often tricky world of social investment. It was designed by charities and social enterprises and includes educational content, resources and case studies to help you decide if it's right for you.

Visit the Good Finance website

Social sector finance includes both grant funding and repayable finance, such as loans from social sector banks, charity bonds, investment from social funds and social impact bonds. They may also offer blended finance  funding that combines both a grant with a repayable loan. Each of these are covered in turn below.

Social sector grants

These conditions usually include how is it is used, what it helps to deliver and impact.

There are a large number of grant providers in the social sector, both nationally and locally. Nationally these include:

  • Big Lottery Fund
    The Big Lottery Fund are the biggest community funder in the UK. They use money raised by National Lottery players to fund 12,000 projects each year, providing grants of between £300 and £500,000 to community and voluntary groups, and charities. Big Lottery Fund offer a number of grants programmes targeting different aims and locations. These programmes change periodically so it is worth checking whether their latest programmes may be relevant for your project. Big Lottery funding supports project that make a difference for individual and communities. Therefore, you will need to be clear on the aims and outcomes of your project and how this will have a positive impact. Their guidance on what makes a successful application explains this further.
  • Power to Change
    Power to Change is an independent charitable trust set up to support community businesses to create better places across England. There are many types of community business, including sports and leisure organisations, who can access both grant funding and support to grow and develop a community business.
  • Heritage Lottery
    Like the Big Lottery Fund, the Heritage Lottery fund projects using money raised by National Lottery players, focusing on projects that help people enjoy and protect the heritage they care about. Sports organisations have already benefitted from Heritage Lottery grant programmes, where eligible projects deliver outcomes for heritage, people and communities.
  • Local social sector grant funding is also available from a number of charitable trusts, foundations and Corporate Social Responsibility initiatives. A good place to start is Know How Non Profit. Comprehensive listings can be found at Funding Central and the Directory for Social Change.
    NB there may be a charge depending on which listings you require, however these can also often also be found in your local library.
  • Finally, grant funding is also available from both Central and Local Government (including European Social Funding). There are numerous programmes that are launched covering a variety of social outcomes where sport, physical activity and community development could be an important tool in delivering interventions. A good place to start is Government Funding, however, most local authorities have their own priorities and nothing can replace strong relationships with the responsible officers and members at a local level.

Social sector loans

In addition to mainstream finance providers, there are also specialist lenders focused on organisations that deliver a tangible social impact as well as a financial return.  

Examples of social sector banks include:

There are also a number of local Community Development Finance Institutions (CDFIs) that provide loans to community focussed and socially driven organisations. A listing can be found at Finding Finance.

These lenders may focus on specific organisations (e.g. CAF is exclusively for charities) or be available to wider social enterprise organisations.

Some finance sector providers may have a greater risk appetite  they are prepared to invest knowing the organisations ability to service debt is restricted because of the social benefit or impact it provides. Others may offer more generous terms e.g. repayment holidays, although the cost of borrowing can be higher.

Social sector bonds

Social sector bonds offer an alternative to loan funding for larger organisations looking to raise finance over the medium term.

At present, these are only for organisations looking for significant funding (£1m or more), although the minimum lending value may come down as the popularity increases.

Examples include:

Social investment funds

Social investment funds provide and use capital to generate social as well as financial returns. This can be in the form of both loan funding and equity investment.

Social investment funds are managed by Social investment finance intermediaries (SIFIs).  Examples include:

Typically, social investment is used to grow the capability and capacity of an organisation, helping it through the challenges of growing and developing.  This can be for example through providing funds to pay for working capital such as staff, overheads or equipment needed to deliver new activities and income streams.

Social equity investment

Social equity funds invest in the share capital of companies (traditional Limited Company or Community Interest Company). Their return is therefore not fixed like a loan, but rather linked to the overall success and profitability of the company.

Typically these investors seek larger growth companies capable of scaling up their operations and multiplying significantly in size. In order to realise their investment, they will also require some form of ‘liquidity event’ such as a sale or a refinancing of their investment (typically between 3 and 7 years post investment). Examples of these funds and the investments they make are:

Sources of equity funding for start-up social ventures is much more limited, with the majority coming from Social Angel Investors. However, there are a growing number of funds becoming active in this space including Big Issue Invest, Mustard Seed and NESTA.

Social angel investors

Social angel investors are active individual investors who want to use their investment and support to see both a financial and social return.

Investment from a social angel may be in the form of debt or equity finance and the terms attached would depend on the individual investor’s requirements. 

Often they are encouraged to invest in enterprises using tax reliefs, such as the Enterprise Investment Scheme or the Social Investment Tax Relief.

There are also a number of Angel Networks and Tax Efficient Funds that may invest in sport related projects where tax reliefs are available and the project generates enough surplus to repay the investment and any interest required by the investor.

Social impact bonds

Social impact bonds are a form of outcomes-based contract where public sector commissioners commit to pay for significant improvement in social outcomes that generate public sector savings. The expected savings are used as a basis for raising investment to fund the prevention and early intervention services that improve social outcomes.

Social impact bonds are similar to an equity investment as repayment to investors is contingent upon specified social outcomes being achieved.

Social impact bonds have been used in some sectors but not as yet to deliver sport and social impact outcomes. They would be suitable for large organisations, who can take on public contracts to deliver social outcomes, and have the capacity and depth of resources to be able to take on a contract that is based upon payment by results.

More detail on social impact bonds can be found in Social Finance’s library.