About this good practice
The Fund is delivered in partnership by 2 leading Scottish social enterprises and offers loans from £50,000 using a revenue-based repayment model. The beneficiaries are: social enterprises aiming to provide direct social benefit to individuals, communities and/or the environment; established enterprises able to provide evidence of potential income generation and social impact; enterprises which reinvest their profits in the business and its social aims, ensuring there are no assets or uncapped dividends transferred out of the organisation to private individuals or bodies; and enterprises which have already considered or unsuccessfully approached other forms or providers of investment to fund the given project/ business plan. Applicants must be asset-locked, able to provide evidence of potential income generation and direct social impact, and also have been unable to secure other investment. All applicants attend an Information webinar before submitting an Expression of Interest form. This ensures each applicant has accessed all required information and considered all criteria in advance of assessment. The application process is staged to provide business advice, guidance, and assessment of their financial readiness to manage social investment. The loan terms are tailored with a final decision made by an investment committee. This should be within 8 weeks of the application submission. The funder maintains support to the enterprise over the term of the loan.
The Third Sector Growth Fund, worth £30m, was introduced to aid resilience and recovery of social enterprises in Scotland. The largest element is The Catalyst Fund created with a £15 million investment from the Scottish Government. 2 Leading Scottish intermediaries are delivering the programme.
Evidence of success
Having been launched in June 2021, as a key element of the Scottish Government’s Covid Recovery and Growth Programme, the impact of the fund is still building while the market is developed. However, the model has been implemented with Sustainable Thinking Scotland (STS) becoming the first enterprise to secure investment of £190,000, enabling them to bring their biochar technology to market. The innovative model allows them to repay the investment via a share of the revenue as the business grows.
Potential for learning or transfer
The Catalyst Fund addresses key elements of financial support required by the SE sector post-Covid. Supporting flexible finance through shared risk and a patient repayment structure, based on income, addresses the significant and unique challenges of setting up a social enterprise. With limited equity or security to offer the lender, this product is an effective bridge between start up grants and income growth which can then lead to larger scale investment. It demonstrates strong collaboration between the finance sector, policy makers and the sector through a viable financial instrument for scale and grow SEs. It moves away from grant dependency while providing greater accessibility to financial support for mission-led start ups. As a response to sector intelligence, market demands and a drive to greater social innovation in the economy, this is a public/SE sector partnership which recognises the entrepreneurial strengths and expertise of the sector in delivering their own solutions.