Big Society Capital has £600m, of which the majority comes from unused cash in bank accounts that had been dormant for more than 15 years.
The fund will back social enterprises that prove they can repay an investment through the income they generate.
Prime Minister David Cameron said; “This is about supplying capital to help society expand. Just as finance from the City has been essential to help businesses grow and take on the world, so finance from the City is going to be essential to helping tackle our deepest social problems,”
The idea is that the funds will provide start-up capital for social enterprises but SAF Housing director, Phil Shanks isn’t convinced. The head of this organisation states that social enterprise does not get support from banks because they have few assets, but banks deal with this everyday by way of ‘personal guarantee’. The reason they are reluctant to lend to social enterprise is because they see the source of funding (whether by grant or local government trading relationships) as high risk.
“Governments frequently reorder their priorities with scant regard for social enterprises who are delivering public services, so when their funding is cut, both they and the banks are left high and dry. In such a situation, the bank is left in the position of having to foreclose on a not for profit organisation which does no favours for a lender’s reputation. If the government really wants Big Society Capital to work it will have to provide a guarantee to secure the funding which services the loan.
“Just because this is a government initiative it does not exempt it from the need for guarantees and no investor with sense will back it until the issue of security of income is addressed.”