The funding world used to be fairly straightforward: there was philanthropy for nonprofits, venture capital for startups and bank loans for existing businesses. But in the age of social enterprise and impact investing, those lines are blurring. As more businesses combine a social mission with a for-profit business model, finance is adapting, giving rise to the notion of integrated or blended capital.
Blended capital draws on private and philanthropic funding sources, each with their own risk and return profiles, to finance ventures that would otherwise not fit in any one box, such as sustainable food and agriculture ventures and food hubs.
One champion of blended capital is RSF Social Finance, a nonprofit that makes loans, grants and investments in social enterprises. Four years ago it launched a series of integrated capital blended funds, two of them focused on farmers. The most recent of those two, Soil Health Capital Collaborative, a $1 million blended fund for sustainable farming ventures, was introduced about a year ago. The oldest: the four-year-old Local Food Capital Collaborative, a $6.45 million fund for farming infrastructure, like moving and processing meat raised by farmers using sustainable methods.
Now, RSF has announced its first Soil Health Capital disbursement, a $200,000 loan package to the Grass Roots Farmers’ Cooperative, a collective of livestock farmers in Arkansas that produce local, sustainably-raised poultry, pork, lamb, and beef. The loan will finance the farmers’ purchases of feed and animals to be raised and then sold back to the co-op. That will be combined with a $400,000 line of credit from the Local Food Capital Collaborative aimed at helping the co-op buy animals from member farmers and process them. “There aren’t many financing options for small-scale operations like this co-op,” says Kate Danaher, senior manager, social enterprise lending and integrated capital.
“As we go deeper in working with organizations with impact, we’ve realized that a standard bank-like loan is not what these enterprises need,” she adds. “This helps us work in a deeper way in all our focus areas.”
Cody Hopkins, a farmer and the Grass Roots Farmer’ Cooperatives’ general manager, left his job as a physics teacher 10 years ago to raise grass-fed poultry, beef and pork. He and his wife, Andrea Todt, who was working as a horse trainer at the time, had both grown up in rural Arkansas and wanted a way to move back there.
The integrated capital approach uses different forms of capital, such as equity, loans, gifts and loan guarantees, often from different funders, to support a developing enterprise trying to solve a complex social and environmental problem. It allows for longer development times by including some types of investment that don’t need to provide a large return. And it supports new enterprises through their early stages, when they need more capital to get off the ground, but don’t qualify for traditional financing.
The Local Food Capital Collaborative was the pilot for the nonprofit’s integrated capital blended funds program, aimed at financing regional food systems. In just the first two years, it deployed $2 million to 40 early-stage sustainable food and agriculture enterprises. The other funds include the $2 million Women’s Capital Collaborative, which has made $2 million in commitments, the $3.1 million Biodynamics Capital Collaborative, with over $3 million in commitments and the $1 million Fair Trade Capital Collaborative.
Anne Field is a New York-based journalist who writes about social enterprise and impact investing. A version of this article originally appeared on her Not Only For Profit blog on Forbes.com.