Choosing between loans and equity as a social enterprise

As social enterprises grow, many reach a point where they can no longer rely on their original source of finance, whether grant applications fail, personal assets are running low or crowdfunding slows. At that stage, organisations must limit their mission or investigate other sources of finance and that usually involves social investment and repayable finance. 

One of the most common questions is whether a loan or equity funding is the right route. There is no single answer. The right choice depends on how your organisation operates, how it generates income and what kind of funding will support your mission without creating unnecessary financial pressure.

Certain offerings are also only available for specific organisations, equity is only available for organisations limited by shares.

This page outlines the key differences between loans and equity funding, and how social investment fits into those decisions.

Understanding your main funding options

Funding for social enterprises takes different forms at different stages. While grants can play an important role, organisations with trading income often look towards repayable finance to support longer-term sustainability.

Two broad options are commonly discussed: loans and equity funding. Both involve repayment in some form but they work in different ways and suit different organisational needs.

Understanding these differences can help organisations be more confident in their decision-making regarding funding for social enterprises.

When loans may be the right fit

Loans are a familiar form of repayable finance. They involve borrowing a set amount of money and repaying it over an agreed period, usually with interest.

For social enterprises and charities with reliable income, social impact loans can be a practical way to fund growth, invest in assets or manage cash flow. Loans provide clarity and certainty around repayment schedules which can suit organisations with predictable income streams.

However, loans also bring fixed commitments. Repayments need to remain affordable even when income fluctuates so understanding cash flow and risk is essential before choosing this route.

That said, there is a reason Social investment is often described as Patient Capital. The mission and impact often comes above finance and open and clear communications, especially before things go awry, will often fall on supportive ears. Big Issue Invest will often give leeway when cash flow problems occur as long as risk mitigation is taking place and plans to get back on track are in place. This allows social enterprises the ability to deliver their mission on rainy days as well as bright ones.

Understanding equity funding in a social enterprise context

Equity investment involves a social investor purchasing shares in an organisation in exchange for capital. This gives the investor ownership and voting rights, in the same way as equity investment in a commercial business. As a result, equity investment is only available to organisations that can issue shares, such as Companies Limited by Shares, and is not suitable for structures like Companies Limited by Guarantee.

Where social investment differs is not in the mechanics of equity, but in expectations. Social investors typically take a more patient approach to returns, allowing time for social impact goals to be achieved alongside financial performance.

Quasi-Equity

Revenue participation (sometimes referred to as quasi-equity) is a different form of repayable finance and is often used by organisations that cannot issue shares. Rather than providing ownership, repayments are linked to revenue and profits, in a similar way to how share dividends are paid out in an equity investment situation. This structure can offer greater flexibility for organisations with variable income, as repayments rise or fall in line with financial performance

How social purpose shapes the decision

For social enterprises, funding decisions are about more than cost and financial return. They are closely tied to mission, impact and long-term sustainability.

Loans may suit organisations that value certainty and have stable income. Equity approaches may suit those that need flexibility and time to grow income without the pressure of fixed repayments.

In both cases, the question is not which option is better but which form of social investment best supports your organisation’s purpose without compromising its values or resilience.

How Big Issue Invest supports funding decisions

Big Issue Invest provides finance to organisations tackling poverty and inequality across the UK, with a focus on social investment that supports long-term sustainability rather than short-term solutions.

We offer repayable finance, including loans and equity approaches, designed around how social enterprises actually operate and generate income. In the equity approach like with commercial 

Choosing between loans and equity involves reflecting on income patterns, risk tolerance, governance and long-term ambitions.

There is no single model that works for every organisation. What matters is finding social enterprise funding that strengthens your work, supports your mission and remains sustainable over time.

FAQs

Are loans suitable for all social enterprises?
Not always. Loans work best where income is reliable and repayments can be managed comfortably.

Do social enterprises have to give up ownership to access equity funding?
Yes. Equity investment involves a social investor purchasing shares in your company, which means giving up a proportion of ownership.

We typically take a minority shareholding, often in the region of 15–25%, depending on the specific terms of the agreement. This enables us to seek a return on our investment while also supporting the organisation through its growth, providing guidance and oversight in line with agreed governance arrangements and long-term impact goals.

How do organisations decide between loans and equity finance?
The decision depends on income patterns, growth plans and how much flexibility an organisation needs in managing repayments.

Can charities access repayable finance?
Yes. Many charities use charity loans or social investment responsibly to support sustainability and long-term impact.

How can I seek social equity investment?
If you’re ready you can enquire here today, otherwise you can read our Investment Readiness Guide here or contact the Reach Fund to get you ready for investment if you’re not confident yet.