Freedom Bakery & Social Investment
SKS Scotland, by Jim Bennett
Given the position you took on Friday in the bulletin re Social Investment, I thought you might interested in our experience with Freedom Bakery – a social enterprise I’ve been involved in setting up with Matt Fountain – based in Low Moss prison developing jobs for offenders.
£50k of the start-up capital for Freedom Bakery was raised via the Social Investment Tax Relief (SITR) system for social investors. 6 private investors kicked in around £8k each. This means that the investors get roughly a 1.8% per year return from the Bakery – but about 7.5% pa from the tax man, giving a return of around 9.3% pa in total. However, the cost to Freedom Bakery of the finance is only 1.8% pa, compared to the 6-8% currently being asked for by other ‘social lenders’ . So, Social investment (with associated private profit) is actually around a quarter the price of current loan finance – incredibly good value for social enterprises. Resilient Scotland also assisted with a £25k loan (at 6%) and a £12.5k grant.
It might be worth taking a more nuanced approach towards social investors. Obviously Goldman Sachs aren’t in it for the social return but if you’re going to attract small scale investors looking for potentially good returns with an ethical base, then can you really argue with this approach? And to throw in another cat amongst the pigeons – the extensive help we’ve been given by Big Society Capital in structuring the SITR deal has been first class.
I think it is important to recognise that community share issues and SITR provide real opportunities to bring small investors into financing social enterprises. People who have no connection with social enterprise before, providing risk capital less expensively than standard lenders is great. If they need to get a modest return for doing that, where’s the harm? After all, would people prefer them to invest in banks, tobacco and the arms industry?! It’s a win-win situation, promoting ethical investment at the same time as getting a new stream of cheaper finance into social enterprises.
See more on Freedom Bakery