There are many different types of social investment, but the following are likely to be most useful to Big Local areas.
Personal lending: loans to people that traditional banks would not lend to. These loans have slightly higher interest rates than traditional banks, but the rates are substantially lower than payday loan companies and other sources of finance that people sometimes consider when they need money.
The average personal loan is around £450 with an average interest rate of 67 per cent, annual percentage rate (APR). If some people in your area have money worries, and are paying high interest rates to doorstep lenders (which can be more than 150 per cent APR), or payday lenders (more than 4,000 APR – capped at an average rate of 1,270 APR from January 2015), your area could offer personal loans at lower rates. These are easier to repay and help people manage their debts. APR is the yearly cost of a loan, including interest, insurance, the fee for administration, which is expressed as a percentage.
Microfinance: small loans for self-employed people and very small businesses. Typical customers include gardeners, handymen, window cleaners, hairdressers, driving instructors, small shops and cafés. They may want to borrow money for equipment or vehicles, or to help expand or position their business to become more self-sustaining, or help people into employment. The average microfinance start-up loan is around £5,700 with an average interest rate of 6 per cent APR.
Small and medium enterprises: loans to help local businesses. Customers are generally businesses with fewer than 50 employees in local areas. They may use the loan to help create or save jobs. The average loan is around £46,900 with an average interest rate of 14 per cent APR.
Social enterprise loans: loans to charities, community organisations and social enterprises. These might be loans to pay the bills until grants arrive, to help the organisation buy furniture or equipment, do-up buildings or buy or build new premises. Sometimes loans are made as a part of an overall package of funding as they move towards greater self-sufficiency. The average loan to a small charity is around £46,000 with an average interest rate of 8 per cent APR. The average loan to a large charity is around £609,000. The average interest rate is not available. Interest rates are highest for the smallest loans and decrease as the loans get larger. This is because processing, assessing and giving out a loan costs a certain amount, no matter how large or small the loan. Covering this cost requires a higher percentage of a smaller loan.