The Growth Fund’s success reveals the need for subsidy

As we reach the 400-loan milestone to charities and social enterprises in the Growth Fund, we consider the value of small-scale lending and the future opportunity.


Written by

Rebecca MacDonald, Managing Director, Head of Investment Management

I’ve had the privilege of working on the Growth Fund since 2015 and remember the first loan that was made by Key Fund in 2016 into Intraquest. Since then, we’ve seen a great diversity of organisations receiving investment spanning social issue areas, beneficiary groups and geographies – all with the clear intent to improve people’s lives.

I’m particularly pleased on three counts. The Growth Fund is reaching into underserved communities. Of the £27 million invested, 51% has been into the bottom 30% most disadvantaged areas as defined by IMD and 73% has been into the bottom 50%. It is also reaching diverse geographies, with 80% of investments into areas outside of London and the South East, including many underinvested areas of England. And it’s creating jobs and local economic activity. Over 8,500 people are employed by Growth Fund borrowers and most are engaged in trading activity which contributes towards the building of thriving local economies.

The organisations accessing the Growth Fund are relatively small with a median turnover of £240,000 and they employ around five people. These organisations are accessing small amounts of investment from the Growth Fund - £63,000 on average – but having a huge impact in the communities they serve.

The Value of Small

We’re beginning to see the value of small organisations play out through the Growth Fund that echoes and builds on much of the previous research.1 ‘The Value of Small’ by Sheffield Hallam University is a key piece of research in this area which was published in 2018 with the support of the Lloyds Banking Foundation. Some of the core messages from the research resonate with my experience through the Growth Fund including:

1) Small organisations are distinctive – in their service offer to address local issues, in the way they work with local people and their contribution to the broader ecosystem including as a voice for the community; and,

2) Small organisation are value creators – for the people’s lives they improve and for the economy and public services they support through their activities.

However, these organisations need the right type of funding to continue to thrive and survive in their communities. For some, this will include repayable finance as we’ve seen through the Growth Fund, but for this type of finance to be available over the long term, more subsidy is needed.

The Opportunity for Subsidy

There are early indications that the Growth Fund is delivering value for money as many organisations are accessing repayable finance that may have otherwise struggled and in turn are growing or sustaining their impact on people. The evidence base is still emergent but will be supported by an evaluation commissioned by the National Community Lottery Fund.

There is an opportunity to do more in this area and to continue the momentum the Growth Fund has built over the past four years – if no action is taken, the provision of small scale blended finance will significantly reduce once Growth Fund capital runs out for new loans at the end of 2021. Subsidy is the key ingredient to secure the ongoing provision of blended finance to enable social investors to serve the capital needs of more and more charities and social enterprises.

We support Access’ in its work with a range of partners, including Government, to ensure subsidy is in place over the longer term to enable more smaller organisations to make a positive difference to communities across England.

If your organisation has used blended finance to create impact, share your story with Access to help build and case for further subsidy.

1 Other reports include Locality (2014), “Saving Money by Doing the Right Thing: Why ‘Local by Default’ must replace ‘Diseconomies of Scale’” and Institute for Voluntary Action Research, “Small Charities and Social Investment”.