A social impact loan provides growth capital to ventures that are delivering financially and operationally sustainable solutions to social or environmental challenges. But why would a corporation choose to loan philanthropic dollars to an impact organization instead of giving it in the form of a grant?
More and more corporations are realizing the increasing value that social responsibility actions and corporate giving practices are generating for their businesses. Today, aligning your business with a mission yields better financial performance. Despite this, the amount of corporate grant and sponsorship dollars (the traditional forms of corporate giving) remains limited, largely because of the high costs and direct expenses associated with these methods.
The good news is that there are new lower-risk, lower-cost alternatives to grants and sponsorship. More and more corporations are diversifying their charitable giving practices in order to mobilize their financial resources that are not earmarked for granting. In addition to providing grants to nonprofits that are doing good, many corporations are now also lending money to for-profit social ventures and revenue-generating nonprofits that are delivering impact at scale.
How Can Impact Loans from Corporations Help People & Planet?
For financially sustainable social ventures that are seeking to make more sustainable impact, loan-based funding can often be a better fit than grant-based funding when trying to scale. While grant-based funding tends to be more scarce and often restricted, loan funding enables impact organizations to react to scaling opportunities and raise substantial forms of capital quickly.
Commercial sources of loan capital are available, but interest rates on these loans may be too high for social ventures to afford, particularly for impact organizations with low margins or ones operating in developing countries. Corporations, however, are uniquely positioned to provide social impact loans due to the increasing public demand for them to function as a leader for social issues as well as their tendency to have ample cash (see most recent quarterly profit reports) on hand. For corporations, this way of “giving” is a new way to supplement other forms of charitable giving while maintaining alignment with key business objectives.
Grants, Commercial Loans, Impact Loans, and a New Model for Corporate Philanthropy
Grant-based funding has long been the lifeblood of nonprofits and NGOs working to help people and communities struggling with social challenges such as poverty, pollution, inequity, injustice, and other crises faced by people and planet. Even some for-profit organizations that have a strong social mission at their core receive grant funding from private and government institutions. While grant-funding is extremely important, and arguably the cheapest form of capital these organizations can access, the demand far outpaces the supply* and the funding often comes with considerable restrictions limiting the use of funds.
On the other hand, commercial lending has its own set of challenges, with many lenders being unwilling to provide the necessary capital or, if they are willing to lend, the costs are often too high for social ventures, forcing them to sacrifice impact in order to service the debt.
After surveying the challenges and benefits of grants and commercial loans, the founders of Good Returns saw the need for a new type of funding that is designed specifically for impact organizations. To bridge that gap, we offer an innovative new model that corporations can use to provide guaranteed social impact loans to sustainable organizations that are solving social challenges. We call it Cycling.
How Cycling Works:
Instead of giving profits away in the form of grants, our client corporations “Cycle” those dollars. Our corporate clients provide capital that is used to generate interest-free loans to organizations that are solving challenges that align with their mission and values. The corporation’s investment is fully repaid in one year along with a return of measurable social good and stories that illustrate the impact that has been created. Each cycle captures the value that philanthropic initiatives bring - from building a positive brand reputation to increasing employee engagement, retention, and recruitment.
Unique to the Good Returns model, a network of institutions and philanthropists guarantee each and every dollar that the corporation cycles through the network, ensuring companies that 100% of their capital will be repaid and enabling them to use capital from their business that wouldn’t otherwise be accessible.
To learn more about cycling read our post Four Key Differences Between Social Impact Loans and Grants for Corporate Giving Programs
Good Returns’ clients get all the same benefits they would get from a traditional giving program, but they are able to do more good with less risk, less cost, and a bigger return in terms of impact. Contact us to learn more.
*According to charitynavigator.org: "Prior to the 40-year period 1977–2017, total giving was consistently at or above 2.0% of GDP. It fell below 2.0% throughout most of the 1970s, 1980s, and 1990s. Total giving as a percentage of GDP rose to 2.0% and above through most of the 2000s, but then dropped to 1.9% in the years 2009 to 2011. Total giving as a percentage of GDP was 2.1% for four of the five years, 2013–2017." This data shows that traditional giving has a historical trend of being limited. In other words, encouraging individuals and companies to give doesn’t have an impact. It would be better to focus efforts on driving performance of GDP to increase giving amounts. Lending, on the other hand, doesn't have this limitation.