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Foundation East

Financial performance

Foundation East’s income is generated through interest and fees charged for the provision of loans, both from its own book and from contract delivery. In addition Foundation East earns income from letting properties.

Benefits of Investing in Foundation East

This short animation explains what happens when you buy Foundation East CITR shares, the impact it has and why to take advantage of this unique investment opportunity.

 

Foundation East is an accredited Community Development Finance Institution (CDFI). As a result, investments in Foundation East shares qualify for Community Investment Tax Relief (CITR). 100% of the investment made in Foundation East through this share offer will be used to make loans to businesses and social enterprises. The following table illustrates the effective annual return that needs to be received from a taxable investment in order to receive a return equivalent to a 5% income or corporation tax rebate:

Example

On an investment of £10,000 the individual receives 5% per annum as a reduction of their tax bill i.e. £500 per annum. The equivalent calculation is the return an investor would have to receive from a tax neutral investment in order to achieve a 5% net return after tax.

£10,000 @ 6.2% = £620 less tax @ 20% of £120 = £500.

£10,000 @ 8.3% = £830 less tax @ 40% of £330 = £500.

£10,000 @ 9.1% = £910 less tax @ 45% of £410 = £500.

Track Record

Foundation East was established in 2004 following research undertaken by the University of Salford to investigate solutions to reduce the barriers to finance for small businesses located in the eastern region.

Investment to date has come from the European Social Fund, Suffolk County Council, DTI’s phoenix fund, Norwich City Council, East of England Development Agency, BEIS regional growth fund, Cabinet Office and capital raised through the sale of membership shares.

Share investors include large private sector companies, major banks, individuals, and social investment and support networks all wanting to put their money to work For a social purpose.

Foundation East has also borrowed funds from Unity Trust bank when funding contracts have required a private sector match funder. These loans have either been fully repaid or are still being serviced in line with terms and conditions.


Performance History

Foundation East’s financial audited accounts and report can be viewed on their website.

In addition to raising funds through the 2019 share offer Foundation East expect to have a service contract in place in early 2019 to deliver loans on behalf of a new funder to the sector and to have secured further funding from a public sector source. In 2018 Foundation East used some of their reserves to support revenue costs whilst they work towards the new contracts.


Forecasts

The forecasts below cover a six year period and based on future expectations and past performance.

Assumptions

Lending
Foundation East anticipate being in a position to redeploy restricted funds of £600k along with new capital of £500k in 2020, £300k in 2021 and £250k in each of the following years. Lending activity is to businesses that are not serviced by the mainstream, therefore must be considered as a high risk. FE mitigate this with very strong portfolio management, robust due diligence and assessment procedures using robust credit tools and experienced staff.

Underwriting risk
All loans will be to small businesses and social enterprises. Some of the risk of bad debts will be underwritten using EFG or other security when available.

Income
Foundation Easts income is generated from interest and fees earned from the proprietary loan book, from property assets, and fee income from delivering a new off balance sheet service contract for a major new funder to the sector.

Freehold property
Foundation East owns two premises and is intending to sell one of these assets in 2020⁄2021.

Overhead costs
Staff costs form the greatest expense. An increase in staff costs to deliver increased loan volumes is expected in 2020⁄21.

Bank interest costs
Foundation East expect to borrow from Unity Trust bank to match an existing contract and to lever in a match to the capital realised from the sale of one property asset in 2020⁄21.

Share capital
Foundation East proposes to raise additional investment in withdrawable share capital of £500k over a 12 month period, 300k in 2021 and 250k in each of the following years.

Bank balances
These are shown as restricted and unrestricted funds on Foundation East’s balance sheet. Restricted funds are those belonging to various funders where the obligation placed under the terms of the funding contract have not yet been discharged.

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