£30m third sector fund unlocks “game-changing” lending from Santander bank
Green investment news – by Louise Bateman
7th November 2014
A new multi-million specialist loan fund has secured what is believed to be the biggest commercial lending investment from one of the high street banks for UK charities and social enterprises.
The £30 million Third Sector Loan Fund was launched today to help plug a £1 billion capital funding gap facing UK charities and social enterprises. It will provide secured and unsecured loans of between £250,000 and £3 million to third sector enterprises, including those operating in the green economy. The fund is made up of £1.5 million grant funding from social investor group Social Investment Business (SIB) and £15 million from Big Society Capital, the financial institution set up to build the social investment market in the UK. Santander, Britain’s fifth biggest UK bank, has committed £13.5 million to the fund, a move described by fund manager Social and Sustainable Capital (SASC) as “game-changing” in commercial finance provision for the social sector.
“The entry of Santander is incredibly exciting,” Nat Sloane, chairman of SASC, told GreenWise. “If this model succeeds it will unlock capital that is much needed by the sector.”
On the back of the deal with Santander, SASC and the SIB said they now planned to develop similar funds to the Third Sector Loan Fund working with philanthropic funders such as trusts and foundations, corporate CSR programmes and wealthy individuals.
The Third Sector Loan Fund will announce its first investments in the next few weeks.
“The entry of Santander is incredibly exciting,” Nat Sloane, chairman of SASC, told GreenWise. “If this model succeeds it will unlock capital that is much needed by the sector.”
There are more than 160,000 charities and nearly 180,000 social enterprises in the UK. Together they employ nearly three million people and represent over four per cent of UK GDP, but according to Social Enterprise UK, access to finance is cited as the biggest barrier to their growth and sustainability.
“Wake up call”
“Wake up call”
“We know there is huge demand for access to capital [from charities and social enterprises], but traditionally, this is a sector that has been cut off from the capital markets,” Sir Stephen Bubb, chairman, SIB, told GreenWise. “[This partnership between the third sector and Santander is a wake up call for the rest of the high street banks.”
The Third Sector Loan Fund points to existing cases of charities and social enterprises that have benefit as a result of loans, including the YMCA, which rebuilt its premises in the Wirral with a loan of nearly £1 million, enabling it to launch better services for the homeless, and BeyondAutism, which in 2010 received a £2 million loan to buy and redevelop a secondary school in south London for people with autism, and has since created 45 new jobs, while turnover has grown from just over £800 million to more than £2.7 million.
“For us to participate in this sector will mean more money is available and the more we know about the sector the more comfortable we’ll be about doing more,” Marcelino Castrillo, managing director, SME Banking, Santander, told GreenWise.
The Third Sector Loan Fund is currently only open to charities and social enterprises, although eligibility is not restricted by sector or by location within the UK.
“Enterprises in the environmental space will be relevant,” said Sloane, who added that interests rates on the loans will be between six and 12 per cent “depending on the risk and nature of the deal”.
Structure of fund
The Third Sector Loan Fund points to existing cases of charities and social enterprises that have benefit as a result of loans, including the YMCA, which rebuilt its premises in the Wirral with a loan of nearly £1 million, enabling it to launch better services for the homeless, and BeyondAutism, which in 2010 received a £2 million loan to buy and redevelop a secondary school in south London for people with autism, and has since created 45 new jobs, while turnover has grown from just over £800 million to more than £2.7 million.
“For us to participate in this sector will mean more money is available and the more we know about the sector the more comfortable we’ll be about doing more,” Marcelino Castrillo, managing director, SME Banking, Santander, told GreenWise.
The Third Sector Loan Fund is currently only open to charities and social enterprises, although eligibility is not restricted by sector or by location within the UK.
“Enterprises in the environmental space will be relevant,” said Sloane, who added that interests rates on the loans will be between six and 12 per cent “depending on the risk and nature of the deal”.
Structure of fund
The fund has been possible to scale thanks to the way it has been structured: the £1.5 million investment from SIB is effectively a philanthropic grant for which the investor has agreed to bear losses first and forego profits. Big Society Capital will be next to bear any losses, but will receive all excess returns from the fund. Santander’s investment is senior debt with a fixed-income return, whereby the bank will only face losses should all other investors lose all of their capital.
“Our £1.5 million investment has catalysed a fund 20 times that size, creating the UK’s biggest fund offering straightforward loans to help charities and social enterprises make even more impact. This is a radical way for philanthropists to make their money work much harder to create change,” said Jonathan Jenkins, ceo of SIB.
“Ground-breaking”
“Our £1.5 million investment has catalysed a fund 20 times that size, creating the UK’s biggest fund offering straightforward loans to help charities and social enterprises make even more impact. This is a radical way for philanthropists to make their money work much harder to create change,” said Jonathan Jenkins, ceo of SIB.
“Ground-breaking”
Nick O’Donohoe, ceo of Big Society Capital, added: “This fund is ground-breaking for social investment. It shows that, with creativity and commitment, banks such as Santander can find a way to meet both their commercial requirements and do more to support charities and social enterprises. This is an important milestone in unlocking finance from mainstream financial institutions and exactly the sort of thing we want to use our investments to enable.”
On the back of the deal with Santander, SASC and the SIB said they now planned to develop similar funds to the Third Sector Loan Fund working with philanthropic funders such as trusts and foundations, corporate CSR programmes and wealthy individuals.
The Third Sector Loan Fund will announce its first investments in the next few weeks.
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