Community transport group HCT has this week secured £3m to help it grow through a new type of social finance.
The 'social loan', which is being provided by Bridges Ventures in partnership with Futurebuilders, links investor returns to HCT's turnover - which means investors share risk and rewards with the company.
HCT CEO Dai Powell said: 'Social enterprises can now compete on a more level playing field on the capital markets.
'With innovative structures like the social loan we can break down the barriers between investors seeking value and investors seeking values.'
The £3m investment HCT has raised so far from both investors is a combination of the social loan, which varies return to investors depending on HCT's turnover performance, and a traditional fixed rate loan. Bridges Ventures has invested £1m in the social loan and has committed to invest a further £0.5m. Futurebuilders has invested £1m in the fixed rate loan and £0.5m in the social loan.
Head of the Bridges Social Entrepreneurs fund Antony Ross said the size of this investment going into a social enterprise was 'quite unique'.
'Fundraising of this sort of size would normally have had to go to a foundation of some sort. But this is an example of what can be done by social investment,' said Ross.
He added that by linking investor returns to turnover, as opposed to profit, it guaranteed the social impact was also growing.
'Turnover is more closely aligned to the social impact of the business and it's very important that the business delivers both, whereas if you're forcing businesses to keep ramping up [profit] margins you could lose the social impact.'
In total HCT hopes to raise £5m investment to cover capital costs over the next three to five years. There will be a second offering of the social loan to HCT where several investors are expected to come in including Rathbone Greenbank Investments, the Bristol based fund manager.
Rodney Schwartz, CEO of social business marketplace ClearlySo, who acted as an advisor to HCT on the deal, said: 'This is a benchmark transaction. Social minded investors have proved keen to offer their support to a company of HCT's quality and track record, as evidenced by the range of investors who are participating.'
...as Susan Boyle might have sung. On SocialEnterpriselive.com this week:
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