Unlocking Flexible, Collateral-free Credit for Social Enterprises

Updated: Jun 4, 2021

For any business, working capital is akin to the oil that keeps a machine running smoothly. Unfortunately, the credit landscape is fraught with challenges for early-stage social entrepreneurs in terms of collateral requirements and high-interest rates.

Social impact enterprises also bear the high cost of challenging perceptions like finding the right price point for social impact products and services, shifting behaviour patterns, and gaining user acceptance. While venture debt and working capital facilities may be available to some start-ups, it is nearly impossible for fledgling social enterprises to avail of small ticket loans as their lack of credit history necessitates stringent (and consequently, costly) due diligence making them less attractive borrowers. To add on, social enterprises that do not conform to traditional business models or having unconventional programmatic approaches confront even more hurdles.

The current economic climate and on-going pandemic have only added to the barriers where social enterprises, who are at the inflexion point of piloting or expanding their programs are experiencing a dire need of working capital.

We at UnLtd India, having over 120 plus social enterprises in our fold, set off to explore potential avenues of funding that would convene short-term requirements, yet yield long term benefits.

The answer lay in mobilizing philanthropic capital to create a revolving loan fund – a product which has been used effectively over decades but has not grown in tandem with demand. Therefore, UnLtd India partnered with GivFunds, that provide low-cost loans to social enterprises to unlock sustainable capital for them to use such capital for maximum impact.

As this capital does not need to be returned, the lender (in this case, GivFunds) can take a higher risk and provide working capital with no collateral along with lower rates of interest. For philanthropists, this channel for financial support enables them to create greater social impact across sectors as the same capital can be utilised over a period to support different social enterprises.

For entrepreneurs, this source of funding can address budget shortfalls required for operational expansion, team building, fixed costs, or necessary inputs. In addition, this flexible, low-cost, collateral-free loan facility helps social enterprises build a credit history with none of the punitive costs that traditional forms of credit carry. With every repayment, other social enterprises can build capacity and scale their impact.

Financial aid to social start-ups through sustainable capital funding:

Two agriculture-based startups were able to gain access to critical capital at the right time through this new funding pool of INR 1.4 Mn. The funds provided a sigh of relief for one of these startups to pilot their high impact program by deploying the funds for purchasing machinery. Whereas for the second start-up, these funds provided a medium to overcome the hurdle of building inventory to increase sales of agricultural inputs.

“We believe that this financial product with customized tenure and interest rates can be a game-changer to take social enterprises to scale. For this year, we are looking to increase the pool to INR 15 million with pioneering philanthropists and make more than 10 start-up social enterprises bankable.”
1,417 views2 comments

Recent Posts

See All