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Enterprise growth and resilience

The fund managers, social banks and other intermediaries we work with support a huge variety of enterprises and charities. We believe that it’s through greater diversity and resilience, as well as the growth of those ready to scale, that these organisations can make a positive impact for people and communities across the UK.

This belief is a particularly important part of our rationale and thesis driving our broader debt investments, across both social bank and non-bank lending. Smaller community-scale organisations are often best placed to tackle local issues, so building their resilience is also an important aspect of making an impact locally.

There are many ways that organisations become more resilient and grow their social impact, given their different needs and objectives in using social impact investment. Some organisations may take out a loan to buy a property from which they can deliver services to new customers, thereby increasing their social impact more sustainably. Other organisations may take on investment to develop new sources of revenue, thereby diversifying their income and improving their resilience for the long run.

Finance is not the only benefit for investees either. Social enterprises, charities, and social purpose organisations say the support and training – both formal and informal – that they get from our fund managers is invaluable. In 2019/20, Social Investment Scotland delivered 64 webinars, workshops and masterclasses that were attended by over 1,400 people.

Alongside our partners, we aim to build a better understanding of the links between the ways social enterprises, charities, and social purpose organisations use social impact investment, and how these increase resilience or growth. As this evidence emerges, we’ll continue to share the lessons widely.

In terms of smaller social enterprises and charities, we’ve begun evaluating the Growth Fund in partnership with Access – The Foundation for Social Investment, and the National Lottery Community Fund. This has already started to generate interesting insights on why these organisations take on social impact investment, so far by focusing on how they use funding.

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The chart below shows what Growth Fund recipients used their investment for. Data from Access - the Foundation for Social Investment, up to 30 June 2020.

We expect to gain further insights in how the different ways of using social impact investment lead to enterprise resilience and growth.

In terms of larger and more established charities, we understand from Charity Bank that their borrowers use the vast majority of loans to buy, build, or renovate property (~80% of total loans of £49.9 million in 2019). In their 2020 Impact Report, Charity Bank goes beyond the use of investment to also report on how this has impacted resilience. They state that 22% (£11.1 million) of their loans in 2019 directly helped to improve the resilience of their borrowers by, for example, building their reserves or improving their financial health. Forty-two percent of their borrowers said their loan helped them stay afloat, while 52% have reported income growth.

The Resilience and Recovery Loan Fund (RRLF) provides an example of supporting enterprise resilience during a crisis. The Fund was created as an emergency response to provide liquidity for the third sector during COVID-19, under the management of Social Investment Business. Learnings from previous years about how enterprises use social impact investment helped to shape and iterate eligibility criteria, and the intended uses for the capital, ensuring the fund could make the biggest impact. Most of the RRLF borrowers have used social impact investment to bridge revenue shortfalls and delays in payments received in the immediate aftermath of the crisis. This has been vital to their survival through this turbulent period.

Other interesting insights into enterprise impacts have recently been shared by our colleagues at Social Investment Business, through their work on the Futurebuilders England fund.

As of this year, we’ve increased our internal focus on understanding enterprise-level impact across our portfolio, to learn more about the different ways social impact investment can support enterprise resilience and growth. We’re currently working on an internal impact framework in partnership with Access – The Foundation for Social Investment, and a range of our intermediaries. We look forward to piloting it next year.