Charity bonds: raising investment for positive impact

Third Sector Promotion Triodos Bank

Charities are looking for support in more ways than ever, but fundraising isn't the only way. See how social investment could also help.

We all know that 2020 has been an incredibly difficult year for charities. For many, the pandemic has resulted in rising demand for services, but also in falling income and challenges adapting to restrictions. However, the health emergency has unleashed waves of altruism in the UK, as people look for ways to support their community through these challenging times. 

It’s not only through fundraising that charities can look for support from those who share their values. Big Society Capital estimates that the UK social impact investment market is now worth more than £5bn: increasingly, both individual and institutional investors are looking to do something positive with their money. 

What is social investment?

Social investment is the use of capital to help an organisation achieve a social purpose. Social investment is not a grant or a donation; it is repayable, usually with interest. It is provided by investors who care about the social outcomes your organisation is achieving. 

If your charity owns land or property, borrowing from a bank can be a straightforward and cost-effective way to finance growth. You can borrow on a secured basis from either a dedicated social lender such as Triodos Bank or a high street bank – but there are some funding needs that banks won’t meet.  

As advisers, the corporate finance team at Triodos Bank usually works with charities who need more money than a bank is willing to lend them. This is typically because they don’t have sufficient fixed assets to offer as collateral for the amount they wish to borrow. Some charities that could borrow from a bank may opt to raise money directly from investors instead (through a charity bond for example) because of the advantages that entails.

Why a charity bond?

Charity bonds enable you to raise capital directly from a group of investors who share your values. There are a number of benefits:

  • Bonds are usually unsecured – so don’t require the same collateral as a bank loan

  • Engagement with investors brings a new supporter base to the charity, and raises the charity’s profile

  • Capital raised can be used more flexibly than restricted funding, and it allows you to keep your charitable reserves for a rainy day

  • Bonds raised through an investment crowdfunding platform such as the Triodos crowdfunding platform can also be held in an Innovative Finance ISA (individual savings account), which helps to reduce the cost of capital for your charity since investors can get their interest paid gross 

Case study – Thera Trust charity bonds

Thera Trust provides essential care, support and services for more than 3,000 people with a learning disability, enabling them to live the life they choose. The charity has a strong 22-year history, where it has grown from supporting five people in Cambridgeshire in 1998 to now providing a range of care, support and services across the UK. It has an annual income of more than £72m and works in partnership with 80 local authorities across the country.

The corporate finance team at Triodos Bank first worked with Thera Trust in 2015 to help it raise £2m of investment from impact investors to purchase and adapt properties. We partnered with the charity for a second time in 2018, and then again this year, successfully raising a further £5m on each occasion.

Since 2015, the charity has increased the number of people for whom it has provided a home from 48 to 166 individuals, thanks in part to the support of its crowdfunding investors.

Next steps

If you decide to raise capital directly from a group of investors through a charitybond, you need to work through an authorised intermediary and will be supported through the process. Get in touch with the Triodos team to find out more about whether this type of finance is right for your organisation. 

Whitni Thomas, Senior Manager – Investor Relations & Crowdfunding, Triodos Bank UK

whitni.thomas@triodos.co.uk   

 

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