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In an era of increasingly tightening funding of not-for-profits, and ever-present unmet social and environmental needs, new funding approaches are emerging.
Australia is beginning to adopt some approaches pioneered internationally, that seek to provide funding for activities that generate a positive social or environmental impacts. These approaches can include:
- social or environmental impact investments
- community finance
- new lending practices, and
- social impact bonds.
Many of these approaches offer blended return - a financial as well as social or environmental impact.
Each of these approaches raise legal issues for not-for-profits. In particular, for a not-for-profit to be able to seek impact investors, it must set up a structure that can attract investors. Not-for-profits cannot attract equity investors, and not-for-profits cannot be 'owned' in the same ways that for-profits can be (ie that cannot have shareholders). Similarly, not-for-profits cannot distribute profits. Therefore, legal structuring needs to be carefully considered if a not-for-profit wishes to be able to attract investors.
Our Social Enterprise Guide steps through legal structuring in more detail, including hybrid structuring that can enable not-for-profits to benefit from equity investors.
We also run training programs and webinars on new funding approaches. Check out the Training section of our website for upcoming sessions.
Social impact bonds
Social impact bonds (SIBs) are a financial instrument that pays a return based on the achievement of agreed social outcomes. To date in Australia, SIBs have been initiated by state goverments to address social problems that were previously funded exclusively by government grants.
The fact sheet below covers whether a SIB is right for your organisation, how to set up a SIB, how to measure outcomes, and key legal issues associated with SIBs.
Debt financing is one way an organisation can enhance its financial position and long-term sustainability. The guide below provides an overview of the key concepts in debt financing and explains some of the terminology that is used in debt financing arrangements.
Equity financing is the way that an organisation raises money by "selling" an ownership stake in itself to a third party. The guide below provides an overview of the key concerns in equity financing.
To assist in your organisation's understanding of debt financing, equity financing, social impact investing and investors (definitions and resources), Not-for-profit Law has developed a comprehensive financing glossary. It is a useful tool for reading alongside our other resources in this section on new funding approaches.
The following websites have more information on new funding approaches for not-for-profits:
- Impact Investing Australia - a not-for-profit focused on building impact investing in Australia
- NAB Impact Investment Readiness Fund - a fund to support organisations to become impact investment ready
- the NSW Government's Office of Social Impact Investment - works to grow the social impact investing market in NSW. It has many useful resources on its website.
- Social Traders - a Melbourne-based not-for-profit assisting social enterprises to develop and scale.