Social Lender Loan App Download
Luana Clermont
Social enterprise lending is a form of social finance which refers to the practice of offering loans and other financing vehicles below current market rates to social enterprises and other organisations pursuing social goals. This is often referred to as "patient lending," or financing with "soft" terms. Patient lending recognises that projects with social outcomes often reach profitability later than commercial projects. Softening the terms of a loan means that a social lender may offer provisions such as longer loan terms, lower interest rates and repayment "holidays" where capital and interest repayments are not due until the project is profitable. Social lenders might also offer small grants as part of an investment package.
Social lending and social investors increased in popularity and number in the 1990s, in part as a reaction to the trend within charities, social enterprises and other voluntary and community organisations towards increasing their percentage of earned income and away from depending on shrinking sources of grant income. As a non-profit organisation develops new income streams, there is typically a funding gap between necessary investment in capacity, staff or infrastructure and profitability. This trend coincided with an increased tendency, in both the US and the UK, of government to turn to the voluntary and community sector to offer public services and provide solutions to social problems. Finally, the proliferation of venture capital firms in the tech boom of the mid-nineties highlighted the successful practices of venture capitalists and other private investors, and those practices eventually spilled over to the non-profit world. This trend began in the US, most notably on the west coast, and eventually spread to the UK and Europe.
Social lending and venture philanthropy are the direct result of applying private sector funding models to the public or voluntary sector. This is demonstrated by the recent trend for social investors to offer performance-related loans (often referred to as 'quasi-equity') and share equity in social businesses with the appropriate legal structure; two practices which are directly borrowed from venture capital.
Advocates of social lending argue that earned income is the better way to ensure long term sustainability for the voluntary and community sector and the only way for social enterprises and social businesses to succeed. And loan finance is best suited to sustain organisations during and beyond the growth or start up period because a loan focuses financial discipline and prepares an organisation to receive commercial finance in the future. Additionally, social lenders argue that the interest they earn can be recycled to benefit other organisations and is therefore, more efficient for the social sector overall than a grant.
The sources of funds vary across the spectrum of social lenders but most often includes government monies or donations from private individuals and foundations or trusts. Lenders may restrict themselves to funding newly started organisations or may fund organisations throughout their life cycle; however the focus of investment is usually in building the capacity of the investee to achieve their stated social outcomes while becoming financially sustainable.
In the British context, the largest of these types of social investors are Triodos Bank, Charity Bank and Unity Trust Bank. All three invest in social enterprises and third sector organisations that are pursuing social goals; Triodos Bank also has an additional interest in financing projects with environmental benefits. These institutions offer full-service banking and aim to serve organisations that cannot access traditional lending from commercial banks, and a majority of their customers are likely to be first-time borrowers.
All of the funds are only intended to support services for beneficiaries in England and funding must complement, not compete with, any possible commercial lending. The primary offering is a traditional loan at 6% which may be accompanied by professional support and grant funding where appropriate. The loan repayment period is variable, dependent on application, but the maximum period is 25 years with interest and repayment holidays of up to two years.
Triodos Bank finances companies, institutions and projects that add cultural value and benefit people and the environment, with the support of depositors and investors who want to encourage corporate social responsibility and a sustainable society. It is a pioneer in ethical banking. Triodos Bank finances companies which it expects will add cultural value and benefit both people and the environment. The bank uses money deposited by close to 100,000 savers and lends it to hundreds of organisations, such as fair trade initiatives, organic farms and social enterprises.[2]
Charity Bank provides loan finance and advice to enable charities, community associations, voluntary organisations, community businesses and social enterprises across the UK to grow. It often lends where banks or building societies either will not make a loan at all, or will only do so on unaffordable terms.[3]
Since 2012, Big Society Capital has acted as a social investment wholesaler, investing in intermediaries which in turn provide finance and support to charities and social sector organisations. Its funds come from dormant bank accounts and from four UK banks.[5]
Other social lenders in Britain include Adventure Capital Fund, Venturesome (an initiative of the Charities Aid Foundation), London Rebuilding Society, the Social Enterprise Investment Fund (formally Local Investment Fund), Community Development Finance Association, Cooperative and Community Finance, Bridges Community Ventures and the Capital Fund.
Kiva partners with businesses and organizations to make an even greater impact on communities around the world, one loan at a time. Join Kiva to create a financially inclusive world, where all people hold the power to improve their lives.
In 2015, CSAF members also created a set of ESG Principles enumerating both negative screens and positive social and environmental criteria. Members have been reporting in these annual publications and the CSAF Open Data Portal on a set of common impact metrics (aligned with the IRIS metrics for agriculture) and created a working group to harmonize around borrower impact reporting similar to the loan reporting tool referenced below under Principle 5.
We maintain a high degree of transparency regarding loan terms, conditions, and processes by communicating clear, sufficient, and timely information in a manner and language our clients can understand.
We commit to ethical behavior in all credit decisions, including loan approvals, servicing and collections, and due processes for resolving disputes with the aim of engaging clients in good faith to support their business as a going concern.
As lenders we commit to coordinating our actions with each other, with other lenders, and with other stakeholders, including buyers, technical assistance providers, and certifiers to support the success of our clients and the growth, impact, and sustainability of the agricultural finance market.
As the fall semester rapidly approaches, students worried about covering tuition in an increasingly volatile loan market will have a new set of options to try. All they have to do is go online, create a personalized profile and friend the right people.
The answer to students' educational finance woes aren't to be found on Facebook, necessarily, but the popularity and influence of the social networking model undoubtedly influenced the latest crop of private loan companies aimed at students, dubbed "social lending" or "social finance."
Rather than marketing loans to customers in the traditional sense, the companies facilitate a more direct connection between individual borrowers and lenders, building upon the "peer to peer" or "people to people" model that's used in applications from downloading music to offering microloans to entrepreneurs in developing countries.
The social approach to lending has previously been adopted outside the student loan sphere by start-up ventures aimed at anyone who needs a loan. Prosper, for example, lists would-be borrowers whose loan requests range from consolidation to moving expenses. Lenders, in that model, can then bid on individual loans at interest rates they're willing to accept. Another personal loan service, Lending Club, even has a Facebook application and allows its borrowers to find potential suitors based on their "network" (or location) and "friend" status.
MyRichUncle, the private lender that in 2006 sought to upend the student loan market and helped jump-start the investigations into relationships between lenders and college financial aid administrators, initially attempted early in the decade to adopt a more personalized model, in which investors would finance students' education in return for a share of their future earnings.
In effect, the social lending model, as now applied to college loans, is operating on a similar principle. The companies, which are in the midst of packaging loans for students about to start their semesters, are betting that the growing popularity of social networking -- as well as a downturn in the traditional loan market -- will position them to become a viable alternative.
Part of the reason for the low volume in educational loans at general-interest peer-to-peer lending services, according to FinAid, is that the one- to three-year repayment period for most types of loans is much shorter than the typical 10- to 30-year window typical of loans for college tuition. That discrepancy leaves a potential opening for more focused services.
The companies are expanding, but from a relatively small base. GreenNote, one of the prominent contenders in the student loan social lending space, has had thousands of students sign up since June when it opened for business, with millions of dollars in loans requested so far, said Akash Agarwal, the CEO. Borrowers come from a cross-section of institutions, including for-profit and not-for-profit, with 300 or 400 colleges and universities represented so far.
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