In Bristol, FareShare South West, a franchise of the national food distribution charity FareShare, estimates that since it started in 2007 the amount of food it has given out has risen by about 50 per cent each year, with a similar rise in demand anticipated over the next few years.
Keeping up with this demand requires funding to cover costs such as transport and staffing. But funding has become more difficult to obtain from traditional sources such as trusts and foundations because increasing numbers of charities are competing for it.
So last year the charity decided to consider alternative ways of finding investment, and succeeded in securing £70,000 from a small group of wealthy investors who in turn benefited from social investment tax relief.
The deal, which was brokered by the social finance intermediary Resonance, was the first social investment tax relief deal to be completed in the UK. Under SITR rules, people who invest in social enterprises and charities are able to reduce their tax bills for that year and might not have to pay capital gains tax when they sell their investments.
Jacqui Reeves, chief executive of FareShare South West, says her charity was approached about taking on the investment by Resonance, which was looking at a range of charities that might be suitable. "The discussions started in early 2014," she says.
"I was open to having a look without any obligation. But when we started to look properly, we realised it could really help us."
The charity is relatively small and has an income of about £430,000 a year: consequently, some of its trustees were initially reluctant to consider accepting money that would ultimately have to be repaid. But Reeves says she managed to talk them around. "I had to make sure I had a good case for the trustees, and Resonance was invited to attend that meeting," she says. "The board took quite a bit of convincing that this investment could help."
Under the terms of the deal, FareShare South West has five years to repay the money, which it can do in regular instalments or occasional lump sums, says Reeves. Daniel Brewer, managing director of Resonance, says the charity will pay 5 per cent interest on the money and the investors will receive a return of about 13 per cent once SITR has been added. The investors also covered Resonance's costs, incurred by carrying out due diligence and setting up the deal.
Brewer says it would be almost impossible for charities with few assets, such as FareShare South West, to secure loan finance at such low rates through more usual lenders such as ethical banks or common finance development institutions. "The SITR element made the deal work," he says. "It meant that we could reduce the cost of capital to the charity and increase the return to the investors."
The deal was completed in November. Reeves says the charity intends to spend the money in a variety of ways, including the development of its commercial catering arm, the income from which could help pay off the loan, and the possible purchase of a third delivery van and more fridges.
Reeves says: "There's no stipulation about what we have to spend the money on. We're viewing it as a financial cushion - we're not going to spend it all tomorrow."
But she doesn't believe that social investment will replace the charity's main sources of income: grants from trusts and foundations and membership fees charged to charities that receive food supplies.
The decision to accept social investment was a leap of faith for the charity, but Reeves is convinced it was the right one. "If you look at the amount of time and money it takes to put together fundraising bids, it's not much different from applying to funders," she says. "I would definitely advise other charities to go for it."