Social finance leverages capital to achieve social, cultural, and environmental goals along with financial returns. It’s a way for social enterprises and impact organizations to add flexible capital where other funders may be unwilling to fund.

For an introduction to social finance, tailored for social entrepreneurs and impact leaders seeking to understand and navigate the landscape of impact investing, download Social Finance Fundamentals. This handy resource was designed to help social purpose organizations understand the social finance and capital continuum, some of the financial instruments used by investors, and includes a small (not comprehensive) list of Canadian social finance intermediaries and impact funds.

Download: Social Finance Fundamentals

 

The Growth of Social Finance

The social finance market is expanding, attracting various investors from foundations to individual investors. In 2022, impact investments exceeded $1 trillion – more than double what it was just 2 years before.

While the growth brings hope for system change, it also raises questions about accessibility for smaller, community-focused organizations, and funds that talk about impact but are veiled in extractive capitalism.

Capital Continuum for Social Impact

The capital continuum includes a range of financial instruments from grants and donations to equity and social impact bonds. Whether social returns or financial returns, each offers different benefits depending on an organization’s incorporation structure (e.g. non-profit, co-op, incorporated), growth stage and goals.

  1. Donations
    Capital given by anyone for charitable purposes and to benefit a cause.
  2. Grants
    Funds given by a specific granting body, particularly the government, corporations, foundations, educational institutions, businesses, or an individual. To receive a grant, an application is required.
  3. Forgivable Loans
    A form of loan in which its entirety, or a portion, can be forgiven or deferred for a period of time by the lender when certain conditions are met.
  4. Social Enterprise Investments or Impact Funds
    Investment funds that can be accessed by social enterprises.
  5. Community Loan Fund
    A fund that provides loans to the community usually for the purpose of financing a community project.
  6. Corporate Bonds
    A debt security tool issued by a corporation and sold to investors in order to raise capital for a variety of reasons. In return, investors receive repayment in terms of financial capital.
  7. Social Impact Bonds or Outcomes Finance
    A tool based on the pay-for-performance principle where the government agrees to repay investors for the improved social outcomes of the project/program.
  8. Equity
    Equity financing is the process of raising capital through the sale of shares. By selling shares, the company sells ownership in their company in return for cash.
  9. Community Bonds
    An interest-bearing loan with a face value, fixed term and set interest rate. Community bonds always generate a social or environmental return, in addition to a fair financial return.
  10. Venture Capital
    Capital that usually takes monetary form but can also be technical or managerial expertise. Investors provide to startup companies and small businesses that are believed to have long-term growth. This type of financing usually comes from accredited, high net-worth investors, investment banks and other financial institutions.
  11. Traditional Debt
    Money that is owed or due to another institution or individual.

The main differences among these instruments revolve around their repayment terms, the expectation of financial returns, and the degree of risk involved.

For example, donations and grants do not expect repayment, making them non-repayable support. In contrast, loans and bonds require repayment with interest, representing debt financing. Equity and venture capital involve selling ownership stakes in return for capital, aligning investor returns with business success. Social impact bonds are unique in tying financial returns to specific social outcome achievements.

Download Social Finance Fundamentals to go a little deeper and better understand the differences and use cases for each of these financial instruments.

Social Finance Fund in Canada

The Social Finance Fund is one initiative making social finance more accessible.

The Social Finance Fund (SFF) is a $755 million Canadian government initiative aimed at growing the social finance market. It provides flexible financing to social purpose organizations (SPOs) like charities, non-profits, and social enterprises. The SFF uses a wholesaler model to distribute funds through intermediaries to SPOs, encouraging private investment alongside government funding. A key focus is on inclusivity, with at least 35% of its capital dedicated to advancing social equity.

The three wholesalers are Boann Social Impact, Realize Capital Partners, Fonds de Finance Sociale. All three are now deploying funds to intermediaries and impact funds.

Thrive Impact Fund

Co-owned by Purppl and Scale Collaborative, Thrive Impact Fund invests in a thriving social enterprise sector. Thrive Impact Fund is an impact-first fund that provides flexible and patient capital to impact organizations solving today’s most challenging problems.

Thrive looks for investments that generate high-impact returns and reasonable financial returns. Thrive measures the local benefits as well as progress toward the UN Sustainable Development Goals.

Thrive Impact Fund’s offerings are tailored to support the growth and impact of these organizations with a range of financing options, including:

Early Revenue Loan:

  • Designed for organizations with early revenue streams.
  • Offers financing up to $100,000 with a direct loan application process.
  • Comes with a flexible grace period of up to one year.
  • Includes wrap-around support such as peer group mentoring and coaching.

Flexible Term Loan:

  • Suitable for organizations needing more substantial funding.
  • Financing is available up to $700,000.
  • Features flexible collateral requirements and interest-only periods.
  • Offers bridge financing options.
  • Provides wrap-around support, including peer mentoring and coaching.

Revenue-Based Financing:

  • Offers financing up to $700,000 with a focus on organizations that have a predictable revenue trajectory.
  • Payments are based on a percentage of revenue, allowing for a “pay as you grow” model.
  • Includes support services similar to the other financing options.

These financing options are designed to meet the diverse needs of social enterprises at different stages of growth, providing them with the capital necessary to expand their impact while maintaining financial sustainability.

Explore Social Finance Further

Social finance is an exciting tool for social entrepreneurs and impact leaders to advance their impact and build sustainability.

Want to go deeper and learn how social finance could support your organization? Download Social Finance Fundamentals, which outlines the capital continuum, financial instruments, and resources for more learning.

 

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