The bank Santander UK has invested £13.5m in a new £30m loan fund that will provide finance to third sector organisations.
The Third Sector Loan Fund, which is also supported by £15m from the social investment wholesaler Big Society Capital and £1.5m from the Social Investment Business, will provide loans of between £250,000 and £3m to charities and social enterprises.
The fund is being administered by Social and Sustainable Capital, a specialist fund manager for social ventures that was launched in 2012.
It will make secured and unsecured loans at annual interest rates of between 6 per cent and 12 per cent, which can be repaid over flexible timeframes within the fund’s 10-year lifespan, and will monitor the financial performance of the investment and its impact.
Sasc is near to finalising its first loans and is due to announce these in the coming weeks.
The three investors have each made a different commitment – the SIB has put in a £1.5m repayable grant, while BSC and Santander are expecting a return from their respective investments of £15m and £13.5m. Each has also paid a management fee to Sasc.
The SIB has agreed to bear losses before other investors and forgo any profits. BSC will be next to bear any losses, followed by Santander.
Assuming a minimum level of repayments by loan recipients, the bank will be repaid its initial investment plus an undisclosed fixed-rate of profit on its investment and is last in line to make a loss. BSC will receive any excess profits after Santander and the SIB’s portion is paid. "The Third Sector Loan Fund recognises that different types of investors have different priorities," a press statement from Sasc says.
Nat Sloane, chair of Sasc, said: "The key is that you’ve got the repayable grant element, the mezzanine element and the fixed element; that kind of stacked investment is unique in the finance space."
He said that Sasc had decided to set a £250,000 cut-off because other products were available to smaller charities and social enterprises. "There is another tranche of the market below £250,000 that other people are getting into, so we thought that would be the rate to go for in terms of getting into an area where there would be demand," he said.
George Osborne, the Chancellor of the Exchequer, said he hoped other high-street banks would follow Santander's lead in helping to set up such funds.
Nathan Bostock, chief executive of Santander UK, said: "We believe that supporting positive social change can be a commercial endeavour. Banks need to look at alternative ways to support all sectors of the UK economy."
According to a press release from Sasc, it plans to work with the SIB to develop similar funds working with philanthropic funders, corporate social responsibility programmes and wealthy individuals.
- This article was amended on 7 November to correct the amounts of funding that have been provided by Santander and Big Society Capital, which had originally been attributed the wrong way round.