Innovative financing approach helps small scale social enterprise expand
Resonance has made its first “permanent capital” investment into Hollywell Housing Trust, a social landlord housing vulnerable people in the South West. The investment of £40,000 comes from the Health & Wellbeing Challenge Fund (H&WCF), an impact investment fund established with investment from the Growth Fund and South West Academic Health Science Network (SWAHSN). The Growth Fund is managed by Access – The Foundation for Social Investment, and funded by Big Lottery Fund and Big Society Capital.
The H&WCF seeks to make social impact investment more accessible and relevant to smaller social enterprises looking to expand their operations and impact, with a particular focus on organisations in the South West linked to the broad theme of Health & Wellbeing.
The use of “permanent capital” is an innovation Resonance has introduced in direct response to the need the H&WCF has shown for more flexible and patient investment capital by this kind of smaller social enterprise. In essence, it involves a loan for which there is no initial interest payable or fixed repayment date set. This allows the organisation time to use the investment to develop their trading activity, without the pressure of fixed interest and capital repayment obligations on this part of the financing. Instead, a share of the enterprise’s revenue is paid once revenues reach a pre-agreed level. At this point, the enterprise should be in a position to refinance the loan, if it wishes, using alternative sources of finance.
Katie Sherjan – CEO at Hollly Housing Trust said “The second investment from HWCF has come at a time of significant growth for Hollywell. These funds will enable us to respond to the demand we are experiencing for our service and grow quickly and sustainably – the patient capital element of this investment means we can focus on growing the business without the worry of cashflow pinch points, allowing us to help as many vulnerable people as possible to find a safe home.”
This kind of permanent capital can be very effectively used alongside a more standard loan financing involving interest and capital repayments, mimicking the debt / equity mix used to finance mainstream businesses. That was the case with Hollywell, where the permanent capital investment followed an initial loan financing from the H&WCF of £80,000 completed in Feb 17. Hollywell has therefore now received total investment of £150,000 from the fund, with a mix of 66% standard loan and 33% permanent capital. This deal shows investment reaching the front line in a form which helps encourage the social enterprise towards a long term and sustainable business model. When the permanent capital is eventually repaid by the social enterprise, it can be recycled into further permanent capital loans to others, making the money go further and help more social sector organisations to flourish
Hollywell was originally selected for investment by the H&WCF due to its strong focus on social impact, linked to an expandable business model. By providing a tenancy and housing support service, Hollywell are able to take individuals out of unsuitable accommodation such as care homes and place them in safe homes that meet their needs and allow them the independence they want. Hollywell passionately believe everyone has the right to a secure and sustainable home and their vision is to provide this to as many vulnerable adults as possible, improving wellbeing and future prospects as well as allowing people to thrive within a community.
Tom Crook of Resonance said “From speaking with over 200 social enterprises across the South West, we often found many were new to social investment, and wanted to ensure that they would not be overcommitting themselves to initial interest and capital repayments. Therefore, to mitigate these concerns, we created this permanent capital product to sit alongside more standard loans, which already have a 2-year interest only period, and provide an even more patient element to the overall financing. Our main aim for this product is to allow enterprises to make a step change in their social impact and to see this as a stepping stone on their journey to sustainability.”
Stuart Monk, Director of Innovation at the South West Academic Health Science Network (SW AHSN) said “It’s great to see this second investment into a social enterprise that is doing innovative work to enhance health and wellbeing in the South West. It’s even more exciting to see the way the Fund is adapting to the needs of this kind of small, but high potential, social enterprise by innovating in the way that finance is provided. This was why the SW AHSN invests into the Health & Wellbeing Challenge Fund, for the benefit care delivery in the South West Peninsula, and to help build the capability and capacity of our social enterprise community.