William A. Cotton, CSU Photography
What do the Coronavirus pandemic and the plunging economy mean for social enterprises and impact investors? Not Only for Profit is talking to a variety of key players for their insights.
The pioneering financial services non-profit RSF Social Finance has provided more than $750 million in catalytic capital—over $550 million in loans and $200 million in grants—since 1984 to for-profit and non-profit social enterprises in food and agriculture, education and the arts and climate and environment. More than that, it has a long track record of thought leadership in the areas of impact investing, innovative financing and community building.
Here are comments from Chief Lending Officer Kate Danaher about rapid response, more-lenient payment terms and more.
How are impact investors stepping up? Do they bring anything unique to the table?
The social enterprises that impact investors support are having the same issues anyone is having. Everyone is suffering. Everybody’s portfolios are in some level of crisis. What’s unique in impact investing is that it draws from a pool of investors who prioritize ecosystem help, not just financial returns. We’re seeing a lot of impact investing firms mobilizing their networks and mobilizing their own resources. They can galvanize their resources faster because it’s just part of the ecosystem.
I’ll give you an example. Open Road Alliance is an organization that has access to different sources of philanthropic capital. It’s providing rapid response loans and grants to social enterprises to help them shore up and wait out this time period.
A lot of people are responding by trying to be lenient in their payment terms to give their clients some space. Some portfolios have put a 90-day pause on any payments from borrowers, because everybody’s in a cash crunch right now.
At RSF, for example, we’ve gone through our entire portfolio to see who is most impacted and will be most impacted in the short-and-medium-term and figure out what internal resources we can draw on to provide quick small grants. And we’re looking at payment terms to give our borrowers some reprieve for a while, so there’s one less expense.
The philanthropic sector can move faster than loan capital or investment capital.
What about the role of philanthropy?
The perceived risk to new (non-philanthropic) investments and loans is slowing funding down or putting it on hold. A lot of people aren’t making any new loans. They’re focusing on how they can support their existing customers.
So there’s a bigger role for philanthropies now. Those of us who have access to philanthropic funding are trying to mobilize grant funding. That sector can move faster than loan capital or investment capital. And one of the greatest needs is to move quickly right now.
The federal government approved a huge aid package that helps loosen up credit markets so banks can continue to make loans without fearing they’re too risky. A lot of the impact investing sector doesn’t have access to these funds. Philanthropies can step up by providing the capital to allow firms like an RSF or Open Road Alliance to keep the money flowing.
The companies we all support are going to be limping for a while before they can be completely back on their feet.
What do you see in the longer term?
One of the biggest keys going forward is going to be impact investors’ ability to be patient. Right now everybody is focused on the short-term. Rapid response efforts are providing immediate relief on a 30-to-90-day window. If this goes on for six months or more—I’m not sure how people are planning to respond to a longer crisis. The key is going to be patience and resilience. The companies we all support, if they haven’t gone out of business, are going to be limping for a while before they can be completely back on their feet and as productive as they were before this happened.
We need to be evaluating every possible scenario so we can make decisions now based on the best information possible.
If our job is to help build resilience in communities with the greatest need, then our role as funders is to balance putting more money into these businesses, at the same time that they may be riskier propositions than they were even three months ago. They’re going to be fragile.
We’re planning for a variety of scenarios. Interest rates are at zero. What if it takes them five years to recover? How are the decisions we’re making today going to help or hurt us in that scenario? This is different from the last recession in a really big way. But we need to be evaluating every possible scenario so we can make decisions now based on the best information possible. When we look at a company we always model a downside, a middle and an upside.