Key terms in Social Finance and Social Enterprise

Advisory & Support Terms 

• Advisory Services Professional or expert guidance provided to an organisation to help it achieve specific goals. This can range from business planning and financial management to legal support and strategic advice. Advisory services are a key component of Capability Building as they provide the specialised knowledge needed for growth. 

• Auspicing A formal arrangement for impact purposes where a legally constituted organisation (the "auspicor") agrees to take responsibility for managing grant funding on behalf of another group or individual (the "auspicee"). This allows the auspicee to access grants that require legal non-profit status or specific tax endorsements they do not have. The auspicor is legally responsible for the funds, ensuring they are used as specified, and may charge an administrative fee for their services. 

• Capability Building The process of equipping an organisation with the skills, processes, and resources it needs for future success and sustainability. This goes beyond simple training and can involve improving operational efficiency, risk management, and overall strategic planning, as well as changing the way organisations assess information and make decisions. It often includes Advisory Services to address specific needs. 

Core Concepts 

• Impact Investing This is the practice of investing in organisations with the intention of generating a beneficial social or environmental outcome alongside a financial return. This strategy aims to create positive change for people and/or the planet. 

• Impact-Led Organisation This is an umbrella term for a business, non-profit, co-operative, incorporated association, charity, Aboriginal Controlled Community Organisations or social enterprise that is driven by a defined social or environmental purpose. 

• Social Enterprise A business that applies commercial strategies to improve social and environmental wellbeing.  

• Social Finance Money that is provided to impact-led organisations in order to create, sustain or grow social impact. It is an overarching term that covers many different types of capital, from grants to impact investment.  

Financial Instruments & Terms 

• Asset A financial benefit recorded on a balance sheet, including properties, claims for money owed, cash, inventories, and property rights. 

• Balance Sheet A snapshot of an organisation's assets and liabilities at a single point in time. 

• Blended Finance When an impact-led organisation is provided with more than one type of capital at the same time. For example, a grant and a loan. 

• Burn Rate How much more quickly an organisation is spending money than bringing it in. It can indicate when an organisation will run out of funds. 

• Capital Financial resources or money, including the cash and other assets held by an organisation. 

• Cash Flow The total amount of money flowing into and out of an organisation. 

• Debt Finance A form of business financing where an organisation borrows money from a lender and agrees to repay it with interest over a set period. This can include term loans, overdrafts, and standby facilities. 

• Equity Investment A type of investment where an investor provides capital in exchange for partial ownership of a business. Non-profit organisations are unable to access this type of investment. 

• Growth Capital A type of financing used by organisations on the cusp of profitability or growth to fund expansion, enter new markets, or make significant acquisitions without a change of ownership. It is often used to accelerate an existing growth strategy. 

• Impact Economy An economic system that prioritises the creation of positive social and environmental impact. In an impact economy, businesses, investments, and economic activities are designed and evaluated based on their ability to generate measurable benefits for people and the planet, while also being financially sustainable. The impact economy seeks to redirect the flow of capital, resources, and talent towards solving pressing social and environmental challenges, and to create a more equitable, resilient, and regenerative economic system. 

• Impact Loan A loan issued specifically to a social enterprise or mission-led organisation to help it achieve a social or environmental outcome. The terms of the loan may be more flexible or affordable than those of a traditional bank loan. 

• Intangible Asset A benefit that is not formally recorded on a balance sheet but can be seen to be an asset to the organisation, such as good reputation with clients, large volunteer base, long-standing operating track record etc. Impact lenders like Sefa puts value toward intangible assets as part of their due diligence process, but traditional lenders and banks often ignore these. 

• Patient Capital Investment capital, often in the form of loans or equity, that is willing to accept a longer repayment period (compared with a bank) or a lower financial return in exchange for achieving a greater social or environmental impact. 

• Payment by Outcomes (PBO) A form of social impact investment where a service provider receives an upfront payment and is paid the remaining fees upon the achievement of agreed-upon outcomes. This means the service provider takes on more risk than under a traditional grant arrangement. 

• Quasi-Equity This is a hybrid form of finance with characteristics of both debt and equity. It is often structured as a loan with flexible repayment terms or performance-based returns, and it can be a risk capital alternative for non-profits that may not qualify for traditional loans or equity investments. 

• Revenue-based loan xxxx 

• Social Impact Bond (SIB) A type of Payment by Outcomes (PBO) arrangement in which private investors fund a social project, and the government or other parties repay them with a return if the project achieves its targets. 

• Social Lending A broad term for lending with the intention of creating a positive social or environmental impact. It is used interchangeably with Social Finance and Social Investment. 

• Syndicates Co-investment structures that make a larger loan amount available to an organisation. The total is split between different lenders, usually on the same terms. There is often a leading lender who organises the syndicate and is the single point of contact for the borrower and the other lenders. 

• Venture Philanthropy An approach to giving that applies principles of venture capital – such as hands-on engagement and long-term support – to philanthropic funding. 

Organisational & Legal Structures 

• Not-for-Profit (NFP) An organisation that uses its surplus revenues to further its purpose or mission, rather than distributing them as profit or dividends to owners. In Australia, this often refers to charities and associations. 

  • This structure can receive grants, philanthropic or public donations (which are not tax-deductible for the donor), and debt finance. They cannot receive equity investment.

• Charity (with DGR status) A not-for-profit organisation registered with the Australian Charities and Not-for-profits Commission (ACNC) that has been endorsed by the Australian Taxation Office (ATO) as a Deductible Gift Recipient (DGR). This endorsement means that donations of $2 or more to the charity are tax-deductible for the donor. A DGR charity's main purpose is to benefit the public. 

  • This structure can receive grants, philanthropic or public donations (including tax-deductible ones), and debt finance such as impact loans. They cannot receive equity investment as they cannot have shareholders or distribute profits. 

• Charity (without DGR status) A not-for-profit organisation registered with the ACNC that has not been endorsed as a Deductible Gift Recipient (DGR). While they are still charitable organisations, donations to them are generally not tax-deductible for the donor. They are eligible for various other tax concessions. 

  • This structure can receive grants, philanthropic or public donations (which are not tax-deductible for the donor), and debt finance. They cannot receive equity investment. 

• Public Benevolent Institution (PBI) A specific subtype of registered charity with the primary purpose of relieving poverty or distress. PBIs are eligible for a range of tax concessions, including an exemption from Fringe Benefits Tax (FBT) and are often endorsed with DGR status. This makes them highly attractive to donors and funders. 

  • As a subtype of charity, PBIs can receive all the same types of capital as a charity with DGR status. 

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• Sole Trader The simplest business structure in Australia, where the individual is the business. There is no legal separation between the owner and the business, meaning the owner has unlimited personal liability for all business debts. It is cheap to set up and has minimal administrative requirements. 

  • A sole trader can raise capital through personal funds, loans, and other forms of debt finance. They cannot attract equity investment as there is no separate legal entity or shares to sell. 

• Company Limited by Shares A separate legal entity from its owners (shareholders). This is the most common structure for for-profit businesses. The liability of the owners is limited to the value of their shares. Companies limited by shares can be public (with more than 50 non-employee shareholders) or proprietary (Pty Ltd) with fewer than 50. 

  • This structure can receive equity investment (by issuing shares), debt finance, and grants. 

• Company Limited by Guarantee A corporate structure used primarily by not-for-profit and charitable organisations. It has members rather than shareholders, and members agree to contribute a nominal amount (e.g., $10) if the company is wound up. The company cannot pay dividends or distribute profits to its members. 

  • Companies Limited by Guarantee cannot receive equity investment as it cannot issue shares. It can receive grants, philanthropic or public donations, and debt finance. 

• Trust A legal arrangement in which a person or entity (the trustee) holds and manages assets for the benefit of another (the beneficiary). Many charities and mission-led organisations in Australia are structured as trusts. 

For a comprehensive glossary of funding and finance terms, you can visit Understorey.