In this Q&A, Resonance’s Head of Growing Enterprises Ollie Pollard, talks about why he’s excited to announce the launch of Resonance’s latest tax-efficient¹ social investment fund. He explains how it will provide a much needed funding option for social enterprises looking to grow their impact over the coming years, whilst offering the opportunity for qualifying Corporates and Individuals (Professional Investors) to invest for positive social impact and utilise Community Investment Tax Relief (CITR). 

Q. Why Is The Fund Needed? 

Along with Resonance’s experience as a leading social enterprise investor, Resonance is an impact property fund manager. As such, we provide life-changing homes and solutions to people and communities facing crisis across the UK. 

We know from working in these communities that individuals and families need much more than the safe and affordable homes that our property funds provide. People need to be able to access quality education, training and employment opportunities, equal access to services to protect their health and wellbeing, and support to ensure that the move to a low-carbon economy is fair and equitable. Social enterprises and social entrepreneurs are a crucial part of this ecosystem, providing solutions and innovations to help our communities thrive. In State of Social Enterprise Report (SEUK) in 2021 it was clearly highlighted that Social Enterprises in the UK were outperforming traditional business on economic, environmental, and social metrics.

This is why, since 2016, we have been designing and deploying innovative Growing Enterprise Funds. To date, through our Health & Wellbeing Challenge Fund (South West) and two regional Social Investment Tax Return (SITR) Funds (South West and West Midlands), we have deployed nearly £9m to support 79 brilliant social enterprises across the South West and West Midlands to grow their impact, their sustainable revenues and ultimately help their communities thrive.  

With the powerful combination of our own experience, internal and external research we know that for social enterprises to continue to grow, they need more flexible, patient, risk-bearing capital – which is still not easily accessible in the sector: 

• In Social Enterprise UK’s ‘No Going Back – State of Social Enterprise Survey 2021’, 36% of respondents cited that finance was a barrier to their sustainability or growth. 
• Research conducted by innovation charity, Shift, proposes that that the need for patient, risk-bearing capital (quasi-equity like products) for social purpose organisations is actually much greater than reported demand, due to ‘demand-side barriers’ such as lack of awareness, understanding and access (‘Beyond Demand – The social sector’s need for patient, risk-bearing capital’, 2020, Shift, CAF Venturesome, UnLtd, Esmée Fairbairn)
• Resonance recently surveyed 127 social enterprises. 89% of those who responded said they required funding or investment to grow in the next two years. 55% stated that they had a preference for this funding to be in the form of repayable finance. Investment that took a ‘Blended Approach’ and was “long-term” was most needed.

Q. How Does The Fund Work?

The Resonance Enterprise Investment fund builds on Resonance’s long-standing experience of regionally focused social impact investing, designed to back social enterprises delivering tangible social impact within some of the UK’s most deprived communities. The combination of experienced “on-the-ground” investment teams as well as an innovative, flexible product suite offering for social enterprises will enable the fund to invest in a diverse portfolio of mission-driven enterprises. 

Specifically, the fund will focus on three core impact areas: 

1) Tackling socio-economic inequality; 

2)  Improving health and wellbeing; and 

3)  Supporting a just transition to a low-carbon economy 

The fund will aim to provide a range of finance products to support the growth of social enterprises, which can be tailored to each enterprise’s specific needs. The fund will operate an Equality, Diversity and Inclusion lens across its entire model from pipeline and investment to internal process and team – supported and challenged by external EDI partners. 

This approach has been developed and tested in order to meet the varied needs, growth and impact profiles of social enterprises. The products have been designed to allow investment into a wide range of legal structures from charities (with trading income) and Community Interest Companies to Companies Limited by Shares (with strong mission and dividend locks in place). The product suite will include: 

• Launchpad Loans – smaller, starter loans for enterprises starting their journey with repayable finance 

• Unsecured Loans – larger loans of up to eight years for enterprises with clear growth potential 

• Revenue Share Loans (Quasi-Equity) – equity-like, patient investment for high growth enterprises, a share of revenue is paid rather than a fixed interest rate (sharing risk and reward) 

• Equity – patient investment for high growth enterprises with viable exits and suitable legal structures.

Q. Where Will The Fund Initially Operate?

The fund will initially focus investment in the South West, West Midlands and North West regions of the UK, where we have a strong investment track record, investment team and network, before rolling out into other regions of the UK.

Q. What Are The Potential Benefits To Investors

The fund is open to investment from both socially responsible corporates and individuals looking to invest for positive social impact whilst utilising the Community Investment Tax Relief (CITR). Investors must qualify as Professional Investors. Investors in the fund will benefit from:

1) Target 5% IRR – benefitting from access to CITR (c6.7% Gross Equivalent)

2) Place-Based Investment Focus, with wider national exposure – the fund will invest into the communities that potential investors operate in, but also give them wider exposure across the UK.

3) Positive Social Impact – through investing in high growth, high-impact social enterprises

4) First Loss Catalytic Grant – Access Foundation for Social Investment have committed £4m (upto 40% of the target fund raise of £10m over the first 5 years) first loss grant cover,

5) Resonance Expertise – 20 year track record of impact investing, including region specific expertise and on-the-ground teams in key investment geographies.  

Investors should remember that their Capital is at Risk and that outcomes cannot be guaranteed.  The value and availability of Tax Reliefs will depend on their individual circumstances and may be subject to change.

Q. What Is CITR?

The Community Investment Tax Relief (CITR) scheme was introduced by the Government in 2002 to encourage investment into disadvantaged communities by giving a tax relief to investors who invest into accredited Community Development Finance Institutions (CDFIs). 

The tax relief is available to both individuals and companies (subject to eligibility) and is worth up to 25% of the value of a qualifying investment into an accredited CDFI. The relief is spread over 5 years (5% claimable each year) from the year in which the investment is made into the CDFI. 

The fund is an accredited CDFI. 

The CITR scheme is jointly run by HMRC and the Department for Business, Energy & Industrial Strategy (BEIS). BEIS is responsible for accreditation of new CDFIs and the ongoing management of the scheme. HMRC oversees the relief.

Q. How Does A Potential Investor Or Social Enterprise Find Out More? 

Professional Investors and Social Enterprises looking for repayable investment to grow should get in touch with me directly or the Growing Enterprise Team [email protected]

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¹ Please note that tax rules may be subject to change.