A great way to understand social finance is through examples. Check out these examples of social finance at work.

Social Enterprises

Social finance products are often tailored to support the impacts of social enterprises, and to diversify the revenue of charities and non-profits.

Here are some examples:

• A charity is launching a volunteer-based fair trade clothing venture whose profits will help to offset general administration costs of the charity. A foundation provides the charity with a grant to help get the enterprise started.
• A non-profit has successfully delivered a government contract but is waiting for the final payment to be released. The Community Forward Fund provides a bridge loan to cover its payroll until the government contract is paid out.
• An environmental organization whose for-profit venture will launch locally-owned wind power generators receives an equity investment from the Community Power Fund, which is dedicated to building community power sources – the investor now owns part of the venture through shares.
• The Toronto Community Housing Corporation posts a community bond to raise $400 million for increasing housing availability.
• Four local community agencies purchase a new building. They receive a patient capital loan, allowing them to co-locate, and renovate a downtown building instead of renting – the mortgage payments cover an asset (the building) rather than an expense (rent).
• A women's transitional housing organization recognizes that it has real estate management competencies and will use these skills to set up a company whose profits will subsidize the organization – they access a start-up capital loan for the social enterprise.

In its second year of business, a social enterprise required a $50,000 loan to purchase its inventory up front, to sell throughout the year. The venture did not have the collateral to secure a traditional loan from a bank. Instead, they applied for a loan from a local community economic development fund, Carrot Cache. The fund provided the loan by accepting multiple guarantors who pledged to support the loan if it went into arrears. The social enterprise was able to pay back the loan successfully. Five years into its existence, it had transacted over $500,000 worth of business across Canada.

Grants can be part of the social finance toolkit

What sets social finance apart is the potential to scale its availability for broader impact. Social finance uses existing capital to attract new investments for public benefit. We can therefore also include grants when considering the social finance toolbox, if those grants have the effect of attracting ‘new investment money’ to the deal.

For example, a community foundation may extend a grant to an enterprising non-profit in order to intentionally attract a repayable loan from a more traditional investor. The foundation would expect a social return on its investment, while the traditional investor seeks a financial return. The enterprise can manage the repayment of the loan because of the presence of the socially minded grantor. The grant has been given ‘legs’ – it has a greater worth than the monetary value of the grant itself.

Social Purpose Businesses

Social finance products are also tailored to support for-profit social purpose businesses, which provides a financial return, plus a social or environmental return on the investment. These enterprises are often referred to as blended or multiple bottom line businesses.

Social finance supports such businesses by drawing on existing money in the capital markets to attract new investment for public benefit.

Here are some examples:

• A social entrepreneur recognizes an opportunity for car-sharing as a way to reduce emissions while providing affordable access to drivers. He receives a quasi-equity loan from the Toronto Atmospheric Fund.
• An agricultural co-operative recognizes the retail opportunity to provide locally grown organic meat and vegetables to an urban market. It receives venture capital from Investeco to get things started.
• A worker co-operative with a venture that provides wholesale fair trade organic coffee receives a capital expansion loan from the Canadian Alternative Investment Cooperative.
• A business that is intentionally creating employment in a disadvantaged neighbourhood accesses community development investment from Social Capital Partners, to support its operations.
• A social purpose business that has successfully delivered a profit-generating government contract and is waiting for final payment to be released accesses a bridge loan to cover its payroll. This is also called ‘working capital’.
• An environmental organization whose for-profit venture will launch locally-owned wind power generators receives an equity investment from the Community Power Fund, which is dedicated to building community power sources – the investor now owns part of the venture through shares.