Giving Compass' Take:

• Open Road Ventures helps social enterprises and nonprofits thrive by providing capital and investing in their credible, effective models of change. 

• The author notes that social enterprises often don't have access to capital the way traditional companies do. Where does philanthropy fit in here?

• Read about the competitive advantage of social enterprises. 

While microfinance did not turn out to be the silver bullet to end poverty as some projected a decade ago, it has proven itself to be an invaluable tool for the working poor.  Before microfinance, when tragedies occurred, often poor families would not have enough cash on hand to pay for the funeral or rebuild the house after a disaster. Microfinance changed this. Through microfinance banks like Grameen, families can access a microfinance loan, spending the needed cash in the moment and stay on track.  In short, they have a safety net.

This is how I think of social enterprises — they are the working poor of the business world. They do not typically have access to the financial services a traditional company does.

Building organizational resiliency as a social organization — whether a traditional nonprofit organization or social enterprise — is difficult. All the money earned or raised is reinvested into a social organization’s growth or programs. As funders, we can recommend the organization build three or six-month operating reserves, but the fact of the matter is that the trade-offs to do so are often too great. Our hypothesis was that if these organizations had access to a working capital loan, they'd be able to withstand and overcome unexpected roadblocks.

 

In February 2017, Open Road incorporated its own loan fund, Open Road Ventures LLC, to solve this gap in the market. As of early December, we have approved 15 loans totaling $4.1 million – and we are planning to more than double that in 2018. While we're only 12 months into this loan fund experiment, demand has proven to be strong.

For us, Open Road Ventures is an experiment. By providing one-time bridge loans to nonprofits and social enterprises, our goal is to demonstrate that these organizations are creditworthy — and that our loan fund can sustainably recycle capital to solve for future roadblocks.

Read the full article about how loans contribute to impact investment by Caroline Bressan at GrantCraft.