Ed. note: substantially updated throughout with comment from Valda Wheeler, SIA
Foresters Community Finance subsidiary Social Investment Australia (SIA) has launched a new fund offering financing to non-profits seeking to buy property.
SIA has launched the Community Finance Fund Non-Profit, which will “employ community finance and social investment strategies to service and support people, organisations and communities with limited access to mainstream finance,” Foresters said. Community Finance Fund Non-Profit is a contributory mortgage fund, in which individual non-profit organisations are taken through a loan assessment and due diligence process for property purchase Foresters Community Finance and then submitted to SIA for finance approval, said Valda Wheeler, SIA managing director.
“As non-profits apply to Foresters for finance, and the assessment and due diligence process determines their investment readiness, loan applications are then presented to SIA’s investment committee and we will identify their eligibility for a loan,” Wheeler said. “The fund will then supply the capital for that specific loan .”
SIA is an Australian Financial Services license holder and is the fund management arm of Foresters Community Finance.
The Community Finance Fund Non-Profit is designed to meet the demand side needs of non-profits when it comes to finance. Loan terms are generally 15 years with repayment being principal and interest and secured by First Registered Mortgage. The fund is designed to attract traditional investment capital, Wheeler said.
“All the loans are secured by First Register Mortgage,” Wheelersaid. “Investors are issued an interest in the sub-fund (loans). It’s an umbrella fund, and investors will apply to be a member of the fund, and will hold an interest in the underlying sub-fund. The investment term is matched to the loan terms. The loans are all 15 years, and they’re P&I loans. Investors will get quarterly capital redemption as well as an income distribution over the term of the loan.”
SIA’s average management fee runs around 1.8% of the total fund, Wheeler said.
“The income distribution is varied and is dependent on the borrower rate,” she said. “If we set the borrower rate at 8.5% p.a., we take a management fee which on average would be, say, 1.8% and the balance would be the investor return. That’s why it’s variable, b/c the borrower rates will vary depending on the loan and why they’ll vary will be based on a matrix – structured specifically for the org, security, their purpose of the borrowing and the LVR. The investor rate of return should be representative of the risk. In some cases, b/c this is a blend of financial returns, there may be times when the social benefit is greater. Each supplementary information memorandum will detail each of those things.”
The Community Finance Fund Non-Profit is separate to the Foresters’ Social Enterprise Solutions fund, which is aimed at social enterprises. Foresters is one of two fund managers selected by the Department of Education, Employment and Workplace Relations to administer the AU$20m Social Enterprise Development and Investment Fund (SEDIF). SEDIF was established to improve social enterprises’ access to finance to help them grow their business and increase the impact of their work in their communities.
“The social enterprise market is different from the non-profit market,” Wheeler said. “Some social enterprises will have a parent that is a non-profit, but the purpose of the borrowing will be specifically for the social enterprise. But if they’re clearly a non-profit, they can’t borrow from the social enterprise fund. Foresters’ mission is to address financial exclusion through three groups – individuals, for which we have a microfinance program, social enterprises and non-profits. This is about delivering a supply of capital to one of those target markets within Foresters.”