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Dispatches from the Catalyst Community Finance Summit

By Education, Policy and Advocacy

Last week was a big moment for Canada’s community finance sector — it was the first Catalyst Community Finance Summit in Saskatoon, a first-of-its-kind gathering of people and organizations working toward a thriving community investment ecosystem across the country.

Panel discussion on policy with Eoin Callan, Frank Altman, Lili-Anna Peresa and Matthew Mendelsohn.

Tapestry sent two team members, co-executive director Ryan Collins-Swartz and knowledge lead Suzanne Faiza, to the gathering. And they were busy! Between them, Ryan and Suzanne represented Tapestry on five different panels, from discussions on policy advocacy to how community finance can act in solidarity with global social movements.

As Ryan and Suzanne settle back into daily work, here are three questions they’re mulling over, inspired by conversations at the Summit:

Times are tough. Can community finance meet the moment?

Throughout the Summit, there was an acknowledgement that we’re living through an important moment in history. People around the world are disenfranchised by our economic system that benefits few at the expense of many, and are seeking positive alternatives.

Community finance is a hopeful rebellion against these systems. By definition, it asks us to trust and care for one another, to believe in an economy that allows everyone to thrive. How might we be even louder about this movement and invite more people in?

How can we better emphasize the community in community finance?

While it’s wonderful to gather with colleagues and plan collective action to move community finance forward, there’s very often one voice missing from the conversation — retail investors.

At Tapestry, we believe the spirit of community investment is with, well, community investors! These are everyday people who want to move some of their money into investments that align with their social and environmental values. Meanwhile, instead of paying interest to a big bank, issuing organizations can return interest back to their communities, building up local economies in the process.

How might we more intentionally center community investors as we advocate for a thriving community finance ecosystem?

Who can we collaborate with?

Suzanne Faiza with Malobi Elueme.

There’s something about being gathered with community finance advocates from across the country that helps us to take a step back, see the bigger picture — and see the intersections between our work and others’.

There were many moments at the Catalyst Summit where Suzanne and Ryan noted ways we could be collaborating with other organizations to strengthen our offerings to community bond issuers. Our name, Tapestry, reflects our belief in weaving together all kinds of support for the organizations doing community-centered work day in and day out.

Big thanks to Catalyst for helping us find more ways to do so!

What is a community land trust? Learn about the movement preserving affordable housing and community spaces

By Affordable Housing, Education

Canada’s housing crisis is reaching a boiling point. We hear about the causes all the time: gentrification, renovictions, real estate bubbles, and more. 

But what about the solutions? One solution with a long history in North America is gaining steam — community land trusts. There are now more than 40 of them across Canada working to keep neighbourhoods diverse, affordable, and vibrant. 

Ready to learn more about this growing movement? Here’s a primer. 

First things first: what is a community land trust? 

In the broadest sense, community land trusts are non-profit organizations that own land and make decisions for what happens on that land at the direction of their members, typically residents of the area. Together, members decide what their community needs and use the land they own to address those needs. 

For example, if the neighbourhood needs more affordable housing, they could lease some of their land to a co-op or non-profit housing provider. If they’d like to encourage arts and culture, they could develop studio spaces or performing venues. And much more! 

How do members make decisions?

Community land trusts run like democracies. Members of a land trust elect a board who makes the decisions. A common governance structure is the tripartite model, where one third of the board needs to be made up of residents inside the land trust’s properties, a third made up of members from the surrounding community, and a third made up of government officials, housing experts and other stakeholders.

Getting this balance of power right is key, because it ensures the community land trust doesn’t only act in the interests of any one stakeholder group. This isn’t a glorified NIMBY group, in other words.

Is there a community land trust near me?

There just might be! There are more than 40 community land trusts across Canada. Find a directory here.

Check out this video for the story of the Kensington Market Community Land Trust, the group working to preserve affordability in one of Toronto’s rapidly gentrifying neighbourhoods. Plus, more on the community land trust movement across North America. 

How do community land trusts get the money to buy land?

Community land trusts don’t always start with a lot of money, but they do have lots of community support — and that’s why many of these groups choose to raise capital by mobilizing their communities. To do this, many issue community bonds, a type of investment opportunity that allows residents and supporters to invest directly in a community land trust’s projects.

Back up, what are community bonds? 

We’re so glad you asked! Community bonds are a social finance tool that can be used by charities, non-profits and co-operatives to finance socially and environmentally impactful projects. Similar in many ways to a traditional bond, they are an interest-bearing loan from an investor, which has a set rate of return and a fixed term. In other words, they function like an I.O.U: community land trusts, in this case, ‘sell’ a bond to an investor, then pay that money back after an agreed-upon amount of time (usually a few years) and with predetermined interest. 

Why community bonds over other financing options for community land trusts?

Community land trusts benefit from a diversity of financing options, but many are exploring community bonds because with this model, they can get the financing they need on their own terms. They don’t have to wait for a government grant or the bank’s approval for a loan — they can launch a community bond campaign when they want to, how they want to. This offers flexibility, which is especially important to land trusts since they often have to spring into action when a piece of property is for sale. Some community land trusts choose to run community bond campaigns to buy specific properties, while others like the Ottawa Community Land Trust are choosing to raise money for a fund they can pull from when properties come onto the market.

Another big reason? Community bonds align with these groups’ ethos of true community economic development (not gentrification). Returns don’t go to big banks or major investors; they go to everyday people living in the neighbourhood, frequenting public spaces, and supporting local businesses. In this way, community land trusts are able to funnel money back into their local economies, fuelling thriving communities from every angle. Learn about all the benefits of community bonds here.

Are you running a community land trust (or thinking of starting one up) and looking for financing? Get in touch with our team — we’d love hear about your project and explore whether community bonds are a good fit. 

Iffy about investing your foundation’s assets in REITs during a housing crisis? Switch to community bonds

By Affordable Housing, Education

A recent report by SHARE, a non-profit shareholder advocacy organization, revealed some unsettling information about residential real estate investment trusts, known as REITs. 

These trusts, which own and often operate profit-driven residential real estate (i.e. apartment buildings), could be contributing to the country’s housing crisis. But investors don’t have enough information to know one way or another, the report found.

The data they were able to gather from Canada’s six largest REITs, though, suggests these trusts’ investment strategies could be pricing people out of housing. New tenants in turned over units paid an average of 13 per cent higher rent in properties managed by the four REITs that provided this data. Tenants moving into newly renovated units paid a whopping 29 per cent more on average than previous tenants (in properties managed by two REITs who shared this data). 

The report also found investors are getting little to no information from REITs about eviction rates, property maintenance, and other factors around securing people’s human right to decent housing.

Are foundations and REITs values-aligned?

In a recent Future of Good story, Gabe Oatley reported that while “Canadian foundations and charities aren’t required to disclose their investments…interviews with experts suggest residential REIT holdings are common.”

Meanwhile, Canada’s philanthropic foundations are under increasing scrutiny to ensure their investments align with their missions and beliefs. The troubling practices revealed by the SHARE report have sparked debates over the role of REITs in exacerbating housing affordability challenges and contributing to the erosion of tenants’ rights — and therefore, foundations’ complicity.

All of this raises a fundamental question: If foundations divest from REITs, where should they channel their investments?

Community bond campaigns: a community-led, ethical way to invest in housing

Community bond campaigns present a compelling solution for foundations seeking ethical and impactful investment options. (New to the world of community bonds? Learn about the model here.

By creating a dedicated portfolio for community investment through community bonds, foundations could actively address affordable housing challenges while fostering community development at the same time. Community bonds are issued by affordable housing providers (you can read about six of them operating across the country here), bought by retail or institutional investors, and repaid with interest rates and timelines set by issuers. This gives community groups who want to address the housing crisis a flexible way to raise the capital they need, while offering returns directly to their community members. And at Tapestry, we work with these groups to make sure there’s a solid plan to generate revenue and repay investors before launching.

Here are four big reasons they’re a values-aligned investment for foundations: 

Community bonds are transparent 

Community bond issuers consistently report on progress to investors throughout their projects, allowing investors to clearly see where their money is going, and make sure they’re invested in truly ethical, affordable housing. This transparency fosters trust between foundations, issuers, and communities, ensuring that funds are making a dent in the housing crisis.

They’re direct 

Investing in community bonds directly supports community-driven and community-focused initiatives that prioritize long-term and sustainable affordability in communities. Through community bonds, foundations can invest directly in grassroots groups with firsthand knowledge of their communities’ housing struggles and effective solutions. 

They facilitate community engagement 

One of the biggest advantages of community bonds is the opportunity for foundations to engage directly with communities at the forefront of the housing crisis. This engagement isn’t just financial — it’s about creating connections, understanding needs, and fostering genuine impact. Foundations can play a pivotal role not only as investors but as catalysts for positive change within communities.

You can help catalyze a community investment movement

At Tapestry, we envision a future where retail investors can put their money into bettering their communities, and the returns from those investments then contribute to the community’s overall economic development. If you believe in this future, too, an investment from your foundation could help build excitement and confidence in community bonds. It’s an invaluable contribution to the individual community bond campaign you invest in, and to the movement toward ethical investment in Canada.

In a landscape where foundations are increasingly called on to uphold ethical responsibilities, the choice of investment vehicles carries immense weight. Transitioning from REITs to community bond investments offers foundations an opportunity to stand as beacons of truly ethical investment — and make a real impact on the housing crisis affecting the daily lives of so many across Canada.

Five big lessons on reconciliation and community finance

By Education

I’ve spent the past couple of days immersed in the world of economic reconciliation at Forward Summit East, in beautiful Orillia. The Forward Summits (there is both an East and a West Summit) are national gatherings of Indigenous and non-Indigenous business leaders committed to building Indigenous prosperity through Truth and Reconciliation. This was the first Forward Summit East, and it was a privilege to be there and learn. This Forward Summit took place on the territory of the Chippewas of Rama First Nation, and I was grateful to be welcomed onto their land and reserve.

It’s been a whirlwind, as all conferences are, of meeting new people, learning new things, and trying to take it all in — but in honour of the National Day for Truth and Reconciliation, September 30, I spent some time reflecting on what economic reconciliation might mean to the social finance world, and, more specifically, in my work as Knowledge Lead at Tapestry. 

Nothing I’ve learned is 100 percent true, all the time 

There are more than 600 First Nation communities across Canada, not to mention the many Métis and Inuit communities. Across Turtle Island, more than 1,000 Indigenous languages are spoken. That’s a ton of diversity in worldview, resources, priorities, and values — something I knew on an intellectual level, but being among a group of diverse Indigenous leaders and thinkers at this conference has driven home this point.

I came to Forward Summit looking for insights on meaningfully engaging with Indigenous communities in the finance space — but I’m leaving with the reminder that there will never be (and should never be) one universal way to do this work.

Economic reconciliation should touch every part of our financial systems

Forward Summit is all about economic reconciliation, which, from my perspective, necessarily sits at the intersection between the concepts of Truth and Reconciliation and economic justice. The Truth and Reconciliation Commission’s call on corporate Canada to implement the United Nations Declaration on the Rights of Indigenous Peoples into all corporate policies and operations. Of course, there is no reconciliation without truth, and this means first acknowledging and learning about the material and/or financial dispossession of the Peoples of Turtle Island, especially through land. It’s only through embodying this historical knowledge that we can begin the process of building and maintaining mutually respectful trade relationships with Indigenous Peoples that empowers their sovereignty. Economic justice calls for a fairer economy — where all have the opportunity to succeed and thrive and it is clear that we will never establish economic justice if Indigenous Peoples economic activities are not supported, valued, and considered a key part of financial and trade systems.

From an immigrant settler’s perspective, this week has deepened my understanding of what that looks like in practice, and offered reflection on how Tapestry’s work might contribute. One key gap, I’ve learned, is access to affordable capital — the same access non-Indigenous business leaders have. And at Tapestry, we believe in affordable, patient, community-led capital for all. 

How much do you (and I) know about Indigenous economics?

But before community bonds can contribute to the work of economic reconciliation, we should ask ourselves: how much do we really know about the existing economic systems and financial tools in Indigenous communities? Are we assuming our economic tools will be useful and relevant? Are we assuming that all Indigenous businesses (and there’s no clear legal definition of what an Indigenous business is) are by default social purpose businesses? Are we assuming that for-profit Indigenous businesses lack a social purpose?

Indigenous communities have unique histories of pre-colonisation economic systems, and for many, these values and customs still exist today. This was highlighted in the Canadian Council for Aboriginal Business’ report from 2017 on Indigenous Perspectives on Social Innovation and Finance, which highlighted the need for non-Indigenous lenders and intermediaries to improve their knowledge base on the barriers faced by Indigenous SPOs and to fill gaps in the existing research on Indigenous social finance. The CCAB identified this as a need that they could use support on. This week, I’ve reflected on how rarely the social finance community acknowledges these Indigenous economies, and the deep learning there is for us at Tapestry to embark on here. Nevertheless, I have hope that these are aspects that can be remedied for us to embark on true economic reconciliation!

What about the Indian Act?

And furthermore, how much do we know about colonisation’s impact on how Indigenous communities’ are able to participate in economies? Many speakers and people I’ve met this week have asked this question of settler-led organisations looking to work with Indigenous communities. I’ll give you an example: the Indian Act prohibits many Indigenous communities on reserve (there are urban Indigenous communities and 120 urban reserves) from using their property as collateral on a loan — the very thing many of our non-Indigenous clients working on affordable housing projects do. That’s just one way the Indian Act interacts with our financial systems; there are countless others, and it’s on settler social finance actors to make sure we’re informed and ready to work around these limitations (and Indigenous Peoples have been routinely doing this!).

We must move at the pace of relationships and Indigenous self-determination

We know that reciprocal, meaningful relationships are a core value to many Indigenous communities, and any work we do toward economic reconciliation must make space for building trust, connection, and reciprocity. 

There were some great examples of settler-led organisations, such as HydroOne, who seemed to have gotten the relationship building right. Penny Favel from HydroOne, spoke to how her organisation rethought their equity model by building more transparent negotiating processes. And also by building relationships with Nations well in advance (think a year or two) through boots-on-the-ground research and listening. They didn’t bring a direct solution to communities, but talked and listened to what communities actually needed, all without the guarantee of a contract in hand.

A caveat here: one thing I’m reminded of this week is that some Indigenous communities (again, they’re not a monolith!) simply want access to the same economic tools settler communities have, even if they’re transactional and not based on deep, involved relationships, as long as those tools can help empower their sovereignty and self-determination. That’s important to fight for, too. 

Regardless, the priorities will always be set by Indigenous leaders in economic reconciliation — and I’m ready to follow their lead.

Suzanne Faiza is the Knowledge Lead at Tapestry Community Capital.

Meet three community bond buyers — here’s why they invested

By Affordable Housing, Education

Investors are an essential piece of the community bond puzzle. But who are they? What’s important to them? What do they value? What do they need to know about you and your project to make the decision to invest?

The answers to these questions are unique to each organisation and project — and Tapestry clients find those answers through stage two of our process working together — but to give you a glimpse into the minds and motivations of community bond supporters, we sat down with three different investors and asked an important question: Why did you buy? 

Here’s what they told us. 

The community development organisation looking to publicly support affordable housing

When Haliburton County, Ont.-based affordable housing provider Places for People launched a community bond raise earlier this summer, one of the very first investors snapped up $50,000 worth of bonds — a pretty significant chunk of the $850,000 goal. That investor was the Haliburton County Development Corporation (HCDC), and executive director Patti Tallman says it was HCDC’s longtime faith in Places for People’s work that made investing a no-brainer. “Knowing the affiliation with Tapestry…we felt very comfortable in that investment,” Patti adds. 

After working with Places for People for many years — HCDC has loaned the organization money in the past for its affordable housing work — Patti says the community bond campaign was a welcome opportunity to publicly support Places for People’s work. “We wanted to be able to show that HCDC is a huge supporter of the concept of what Places for People is and what they do,” says Patti. “To be able to help launch the program right from the get go, it’s maybe going to [encourage] more people to think, Yeah, I can make an investment here.”

HCDC typically invests in businesses in Haliburton, so an investment in a non-profit is “unique and different” from their other work, Patti says. It was a new concept for others, too: Patti says in some of the local media coverage, reporters called the investment a donation, which is not the case. All community bond investors receive their principal investment back, with interest.

The interest HCDC earns from their investment will go back into its programs supporting economic development in the county, like its Local Initiatives Program — the only program of its kind hosted by a community development corporation — which provides non-repayable grants to nonprofits contributing to Haliburton County’s resiliency and vibrancy. Community bonds are meant to build community wealth, and HCDC’s relationship with Places for People is a great example. 

The individual investor who believes in helping her neighbours out

After Deb Alore retired from her job in public health, she began to get more involved in community advocacy in Kamloops, B.C., which she’s called home since 1987. When she started going to general meetings and potlucks hosted by the Kamloops Food Policy Council, she met Lindsay Harris, the council’s food policy implementation lead. She’d also heard of Myles Pruden’s work in the community on net-zero, affordable housing construction.

So when Lindsay and Myles came together to start another organisation, Propolis Housing Cooperative, to build new affordable housing in the community, Deb took note. And when Propolis launched a community bond raise, she was in. “I respect them very much. I think those folks have done great things with other projects,” Deb says. “I just wanted to be a part of something positive and solution-based. And given that I felt the people involved were really reputable, I just thought, I can’t not support this. I need to do this.

As a longtime Kamloops resident, Deb can see firsthand how challenging the housing market is. “We’ve had our share of financial challenges too, but I’ve never felt like I was in danger of losing my shelter because of the cost,” she says. As someone with the means to help her Kamloops neighbours, Deb feels a responsibility to do so. 

Deb invested in the Worker Bee bond, a minimum $1,000 bond with 2.5 per cent interest paid at the end of a three-year term. This is the first community bond Deb has invested in, but she doesn’t think it will be the last. One factor that limited the size of her investment this time around, though, was that it couldn’t be held in an RRSP (some community bonds can be held in RRSPs and TFSAs, but for Propolis’s first raise, their bonds are not eligible). “I’m retired and a lot of my savings are in RRSPs,” she says. “I had to [use] non registered money that I didn’t need for other things.” 

But Deb says she’s not overly concerned with the returns. “For me,” she says, “the investment piece of it was just sort of incidental. It was all about being a part of something positive, a positive change. The fact that I may earn a little bit of interest by loaning the Propolis group a bit of money over the next three years, that’s a bonus. But that is certainly not what drove me to be involved.”

The foundation with a national scope and a commitment to impact investment

Toronto-based Inspirit Foundation has invested in a number of community bond campaigns, among them SolarShare, a cooperative that owns 52 commercial-scale solar power projects across Ontario.

Jory says Inspirit is attracted to the “clean and simple” nature of community bonds: investors buy a bond, and their principal investment is repaid with interest after a predetermined term, usually a few years. “Comparing that to private equity deals, comparing that to social impact bonds, it’s just simpler. I think that’s certainly an advantage of it,” Jory says. 

Inspirit isn’t necessarily deterred by more complicated investments — Jory looks for good investments in solid ideas and projects, and focuses less on the format, he says. But Inspirit does tend to invest in projects and organisations with measurable or tangible outcomes. “Most of the stuff that we look at is pretty concrete, and we were able to see or even interact with end users,” he says.

Part of why Jory is a connoisseur of impact investment formats is Inspirit’s commitment to a 100 per cent impact investment portfolio — whereas some foundations make more traditional investments without ESG considerations in order to earn returns for their granting programs. “Since Inspirit exists to create a more inclusive and pluralist society, our investments need to generate returns that transcend financial outcomes for our foundation and maximize stakeholder value,” reads Inspirit’s investment policy statement.

Jory predicts Inspirit will continue to invest in community bonds, and that he’ll have more and more to choose from. “I get the sense that more and more nonprofits are looking at the model and wondering if it’s workable [for them].”

It’s tax season and we’re here to help

By Education, News

It’s that time of year again. That’s right – it’s tax season. 

For issuers of community bonds, this means it’s time to report the investment earnings of their investors to the Canada Revenue Agency (CRA) and Revenu Québec, and to provide investors with the necessary paperwork to file their income taxes. 

For issuers working with Tapestry, this process is a simple and straightforward one. Our clients need only email their investors to inform them that the tax slips are en route, and we take care of the rest! 

At Tapestry, our investment management software, Atticus, is the real hero of the season. Not only does Atticus securely store investor data and calculate interest disbursements, but it also generates reports that hold the information required for T5 and RL-3 tax slips. 

Tapestry generates these slips and ensures they are sent to investors before the required deadline. 

“Data management tools like spreadsheets are prone to human error,” explains our Impact Investment Manager, Theodora Mladenova. “Not to mention, it isn’t a safe way to store investor’s sensitive information. It is possible for issuers to manage this work on their own, but we save them a whole lot of hassle and reduce these risks.” 

Satyameet SinghBeyond tools such as Atticus, which streamline this process for tax reporting, Tapestry also builds on 20 years of experience in the field. “Ultimately, this knowledge saves our clients time and money, so that they can focus on what they are good at – growing their positive impact within their communities.”  

Our seasoned Campaign Manager, Satyameet Singh, also reminds us that this is an opportune time of year for issuers of community bonds to have a touch point with their investors. “Taxes may be a bit boring but your project certainly isn’t! This is a great time to provide an update to investors on your project and show them how their funds are being put to use,” he explains. “Investors really appreciate this communication, and it helps to build a deep and trusting relationship. We always recommend that our clients take advantage of this opportunity to reconnect with their investors.”

Timing your Community Bond Campaign: what to expect

By Education

Typically, a community bond campaign takes about one year from start to finish. While every project is different, and may vary slightly depending on the total sum being raised and unique project milestones, we find that the vast majority of organizations are able to achieve their funding goal within this timeframe.

In this article, we will walk you through our community bond process so that you can understand how your funding timelines can fit with your project needs.

Getting Started

Each community bond campaign begins with an introductory workshop as the first step. This 3-hour session will be a chance to bring your entire organization together (Volunteers, Staff, Board Members, Advisors, etc.) to learn more about community bonds and how they could potentially be used to fund your project. After the workshop, you’ll receive a readiness assessment from Tapestry with a recommendation on whether community bonds will be a good fit for your project and organization.

If your assessment suggests that community bonds are a promising financing route, you will move into the Planning & Feasibility phase.

Planning & Feasibility

Clients come to us at all different stages. It is our job to get you to the point of being investment ready. In order to do this, we will model your finances to get a picture of how much debt your organization can comfortably carry.

Next, we will map your community stakeholders to understand their needs and appetite for investment. Together, these two critical steps will take approximately 2 months.

If it is clear after Planning & Feasibility that 1) your organization is in a financial position to carry debt and repay investors, and 2) there is a sizable community to support your project, you will move into the Structuring phase.

Structuring

During the 3 months in Structuring, we will be helping you to set your bond terms. This will be done through a combination of financial modelling and community consultations to test the bond terms.

We will also be preparing all the necessary documents to bring your investment offering to the public. These will include a:

  • 5-10 year business plan
  • Offering statement
  • Term sheet
  • Trust agreement

Your Tapestry Campaign Manager will work with you to create your marketing and communications strategy, and set you up on our sales platform so that investors can easily invest online. We will train you to use these tools, and to communicate effectively with potential investors.

By the end of the structuring phase, you will have:

  • Your investor package ready to go
  • A campaign website that links to your organization’s homepage
  • A marketing and communications plan that will include a detailed budget and timeline for key messages through social media, e-newsletters, investor information sessions and press
  • A sales process set-up on our customer relationship management (CRM) system and on Tapestry’s investor management platform, Atticus

Raise

At this point, you will be ready to go live and bring your campaign to the public! Once your campaign is launched, it will take 6 months to raise your target investment. Though this timeframe can vary slightly, we find that a period of 6 months gives your organization enough time to tell your story and demonstrate your impact, and gives investors ample time to do their research and make an investment decision.

We generally don’t recommend extending beyond the 6-month timeframe as there needs to be a sense of urgency in order to engage investors.

Your Tapestry Campaign Manager will meet with you regularly throughout your raise and make sure your campaign is on track. As bonds are being purchased, our Investment Management Team will work in the background to onboard investors and process their transactions.

 

Management

Once you have reached your target investment, Tapestry will continue to support you with professional investor management services for the duration of your bonds.

Our Investment Management Team will look after interest disbursements, issue tax forms and provide customer service to investors as needed. At year end, we will also support you with financial reporting on your bonds.

An accelerated timeline is sometimes possible

We are often approached by organizations that are on a tight timeline and interested in pursuing an accelerated plan. In some cases, this may be possible but will depend on the readiness of your organization.

In certain cases, organizations may have already taken the time to build detailed financial models on their own. In such a situation, we would work together to assess whether it is possible to by-pass the Planning & Feasibility phase.

If your project will require tighter timelines, it will be important to share this with the Tapestry team early on so that we can adjust your schedule accordingly.

Don’t raise before you can spend

Another important question is when to raise your funds. We always advise organizations not to begin raising funds until they have a defined use for the capital, and there is a planned transaction date within sight.

Of course, if you are searching to purchase a property, finding the right property may take time and you will need the funds in hand to do so. However, once your raise is complete, we recommend deploying the funds as soon as possible as you will be beginning to accrue interest.

Under certain circumstances, it may make sense to stage your raise to match project milestones. For example, if you are constructing a building rather than buying one, you may wish to issue multiple offering statements in order to secure the funds only when you need them.

 

Tapestry will always work with your team to understand the important milestones of your project, and do our best to match the timing of your funding.

Where to start?

Are you interested in raising community bonds for a project? The first step is our Introductory Community Bond Workshop. Learn more about it here, and get in touch with a member of our team at info@tapestrycapital.ca.

What is the right financing mix for our project?

By Education

One of the most common questions we receive from groups interested in raising community investment is “What is the right amount to be raising in bonds and how will this financing fit with our other sources of funding?”

The long and short of it is, there is no correct financing mix. Every organization that we work with is unique, and therefore, there is no magic one size fits all answer to this question.

However, in this blog we will attempt to give you some high-level ideas and thresholds for project financing. Once we begin to work with your organization and better understand your project and financial situation, we will be able to provide your team with some guidance on how much your organization can raise in community bonds.

We always recommend that this work is done in close cooperation with your finance/accounting team and Board Members, as they will have important insight on the risk tolerance of your organization and its capacity to carry debt.

Types of financing available to nonprofits, charities and co-operatives

When we speak of an organization’s project financing, we will often refer to their capital stack. In simple terms, the capital stack represents the underlying financial structure of an asset or real estate deal. Often, the capital stack is presented as a graphic that shows the different types of capital in a deal stacked above each other, like a cake with many layers.

Types of financing that may appear in a capital stack:

In the case of co-operatives, it’s also possible to issue preferred equity in the form of preferred shares. This cannot be done for charities or non-profits because they cannot be owned.

Finding the right mix for your organization will mean balancing your appetite for risk and your cash flow situation. Ultimately, the goal of your organization should be to align your sources of financing with your project timelines and key cash output milestones, and balance this with finding the lowest cost of capital through a combination of the tools above.

Percentage of total financing

There is no correct percentage of bonds within an organization’s capital stack. It could be as little 5% for a large project or as much as 100%. In the past, most of our clients have raised 10-40% of their total financing in community bonds.

For certain organizations, it may make sense for the bond total to be a larger piece of the puzzle. This is common when an organization needs to access a large sum of capital quickly, and don’t have the time to fundraise, or when traditional lenders are only willing to finance a smaller piece of the project.

“Bonds are such a great tool for community organizations to use when considering a capital raise,” says Mary Warner, Co-Executive Director at Tapestry. “Community bonds allow the organization to set the terms of the financing in a way that works best for them and allows them to reach out to their community in a new way, offering a chance for their supporters to invest in the future of their project, and to directly benefit from a financial return on that investment”.

Total dollar figure

“There are a lot of factors that go into determining how much an organization wants to raise but we have seen many partners accomplish their goals in raising between half a million and five million in their first raise,” says Mary.

Setting an initial goal within this range can help set your organization up for success. This is simply because the concept of bonds will be new to your community, there will be no existing marketing and messaging around your project, and you won’t have had the opportunity to test your community’s appetite for investment yet.

Due to certain fixed costs (ex. Legal, marketing etc) raising less than $500,000 in bonds isn’t generally a cost effective way to raise capital. Typically, the more you raise, the less it will cost per dollar of financing.

Once an organization has successfully completed an initial raise, they will have the opportunity to tap into their existing investor base and issue reinvestment campaigns. They can also build on the message of a successful bond raise and consider raising bonds for different projects in the future.

“We’ve seen this type of sequential bond raise with several partners, including SolarShare and ZooShare,” says Mary. “Building on the success of their initial raises, and foundation of proven ability to raise and manage community investments, has allowed these organizations to expand their projects and further their missions.”

We often see reinvestment campaigns that are much larger than first time raises. This is because, with time, issuers become more comfortable with their investor base, gain a better understanding of their community’s appetite for investment, and have built a solid marketing narrative around the organization, project and offering.

For example, our largest single raise to date has been $16 million, and this was a reinvestment campaign for an organization that has done repeated raises.

If a first-time raise over $5 million dollars is being contemplated, there are many things the organization will have to consider to ensure the raise is successful, including having sufficient staff and marketing support to maintain momentum.

Some organizations may have an easier time with a larger first campaign if they have:

  • Experience running a substantial capital fundraising campaign
  • A large and engaged pool of donors, members or supporters
  • A large project that will gain significant community and/or media attention early on

Deciding which types of financing should be used for different expenditures

Ideally the duration of the liability should match the duration of the asset, to the extent possible. In simple terms, this is why a mortgage would have a 25 year maturity, while a car loan would have a 3-5 year maturity.

In the context of your project, you should be thinking of the underlying asset of your project, and its associated projected cash flow.

Generally, community bonds will work well for funding long-term assets. A line of credit would be better suited to funding a short-term project or addressing a short-term funding need.

Relationship to other funding sources

Typically, if there is a mortgage in place for a project, community bonds will be subordinate to the mortgage. In other words, in the case of a default, the financial institution holding the mortgage will have the first right claim on the asset, followed by the community bond holders.

These details will be negotiated as part of your mortgage deal, and you should inform your financial institution of your intent to raise community bonds. In our experience, traditional financial institutions welcome community bonds as part of the financing mix as they view them as standing in the place of equity, and as an additional capital buffer.

“When considering community bonds as part of your capital stack, if it will be in tandem with a mortgage, it is important to engage the mortgage lender with the idea early on,” says Mary. “We have seen many organizations use both community bonds and a traditional mortgage so it is a possibility but it is important to be clear with the lender or potential lender about your intentions so that you can have firm expectations about how much will be raised and what the timelines for financing are.”

Where do we start?

Figuring out your project financing can be complex, and at Tapestry we understand this very well. We are always happy to speak to your finance/accounting team about how community bonds could fit into your own unique mix.

If your team is interested in pursuing community bonds as a source of financing, we encourage you to reach out to our team and register for our Intro to Community Bonds Workshop.

 

 

Crafting your bond terms: How to find the right rate of return

By Education

Finding the right rate of return for your community bonds will be critical to both your campaign success, and ultimately, your project success. Of course, it will be to your benefit to keep your cost of capital as low as possible. But at the same time, you will need to position an attractive investment to engage your community and ensure that you raise the capital you need. 
Headshot of Mary Warner

Finding this balance is our specialty. Through a combination of financial modelling and community consultations, we help the organizations that we support to design bond terms that work for their balance sheet and their community. 

Today we sat down with Mary Warner, the Co-Executive Director of Tapestry, to give you more insight into the process of crafting community bond terms. Below, she answers a few questions that recently came up during one of our Community Bond Workshops that we offer to non-profits, charities and co-operatives.

What is the typical rate of return offered on a community bond? 

“Bond rates that we’ve seen typically range at the low end from 3%, to about 7% at the high end.

We’ve seen bond interest decrease slightly with the pandemic and current economic situation, but issuers do want to provide their investors with a decent rate of return for the risk they are taking on. So, we haven’t seen rates drop as significantly as commercial interest rates. Current rates for community bonds are averaging at about 3.5-5%.

Typically, the longer the bond term, the higher the interest rate. Another important note, is that when we are referring to interest here, we are speaking of simple interest – where the interest is paid out and does not become part of the principal. Compounding interest (where interest does become part of the principal) is possible in community bonds, but more complex and expensive to issuers. So, for the most part, we see simple interest with community bonds.”

How can we figure out how much we can afford to pay out?

“This is when our financial modelling comes in. The first step is putting together a business model with projections of the next 5-10 years, incorporating your new project.

Then we piece in different options for community bond rates and terms, based on your needs and early assessments of your community. It’s sort of a trial and error process of testing the community bond interest expense and principal repayment. Ultimately, we want to land on a few options that income and cash flow statements can bear.”

Can greater impact mean lower returns?

“That’s a really good question. We have seen in the past that investors may be willing to take a lower return if they feel a strong connection to the project and are passionate about the impact. 

It’s really about finding a balance between the social and environmental return, and the financial return. If the impact is significant and important to the issuer’s community of supporters, you may find that investors are willing to take a slightly lower rate of return. 

If you are a charity, you might also be interested in looking at the ‘giving bond’ model. This is  where investors invest an amount of principal, but instead of receiving interest back as a payment to them every year, the interest is donated back to the charity. The investor does take on the income tax implications of having investment income but they get the benefit of a charitable receipt for the amount of money they donate.

So essentially, it’s equivalent to baking in an annual donation to the charity, and on the flip side, offering the charity an interest free loan. At the end, investors get their full principal investment back.”

We are afraid that we might need a few years to get up and running and generate a profit. Will that be a problem for us in issuing bonds?

“Not necessarily. When we are doing financial models, we want to see that there is the potential to pay back bonds at the end of their term. If your project will take a few years to generate the income necessary, we might want to look at a longer period bond. On the short end, there are 3 year bonds, on the longer side you could be looking at 7-15 years. 

There are also different ways of paying out interest. You might choose to withhold interest payout until year four for example, or to simply pay out all the interest upon maturity. Those are just some of the options we have to manage your cash flow. 

It’s completely normal that in the first year or two you might not generate consistent income until you are steadily up and running. What we want to see in the financial model is that in the longer term, these bonds can be repaid.” 

We would like to have a 10 year bond, but we are worried that investors won’t want to keep their money tied up that long. Any suggestions?

What we’ve seen in the past with other issuers, is that it’s good to offer investors a mix of bond options. So, if we are offering a longer term bond, we might also want to offer a shorter term option. Some investors are able and willing to invest in a 10 year + bond and others will look for a shorter investment.

Having at least two series of bonds with different terms and rates can help with marketing efforts and give options to investors with different motivations. The added benefit of having multiple options is that it can allow you to stagger your principal repayments.

When it comes to a shorter term bond, there is also the option to refinance bonds at maturity. Often, our issuers who issue shorter bonds will choose to issue a new offering statement once their bonds have matured and ask investors to reinvest their funds. We see issuers having very high reinvestment rates. For example, our client SolarShare has found that when bonds reach maturity, about 60-70% of investors choose to reinvest their funds.”

Is there a possibility to repay the principal before the end of the bond term?

“Yes, typically in the offering statement there is a clause that will allow organizations to pay out the principal early. But there is a lot to consider in making this decision. It can sometimes be to the benefit of organization, allowing them to save on interest costs. But it’s also important to consider the relationship you have with your investors. 

It may sour the relationship if investors expected this investment for a period of time and they no longer receive interest payments because you decided to repay the principal early. So yes, there is the possibility but the consideration should not so much be ‘can we?’ but ‘should we?’.

In the case of investor need, the offering statement or the Board can set out the terms of how an “early redemption” takes place.  In some cases it may not be possible, in others you might consider allowing an early redemption if the investor provides a letter stating financial hardship and requesting a redemption prior to maturity.”

We work in a low income neighbourhood and it is important to us that we include our community in this campaign. How can we do that?

“Economic inclusion is a really important topic, and for most of our issuers it’s very important that bonds are accessible to a wide range of their community. We have seen bond minimums set as low as $500 to make this possible.  

We have also had discussions with issuers where they want to maximize community participation by limiting larger size investments.  While the logistics of managing 5 $100,000 bonds may be simpler than managing 500 $1,000 bonds, many issuers we work with have consistently chosen to make community bonds as accessible as they can, setting low minimums for investment and carefully considering larger investments. Community bonds are always about more than financial returns, both for the issuer and the investor.“

How do community consultations help in finding the right rate of return?

“Community consultations give you the opportunity to go to your stakeholders and see what they think of your bond terms and find out what is most attractive. This can help us decide on the options to include in your offering statement. Sometimes you will find that one bond series might resonate better than others. 

You are never going to be able to speak to everyone, but we can help you select a representative group of your community and gain crucial feedback early on to see what is going to be attractive once you start selling.  This also allows you to bring stakeholders together early and start to build enthusiasm and excitement about the project you are working towards.”

Have another question for us to answer? Get in touch at info@tapestrycapital.ca

How do I know if Community Bonds will work for my project?

By Education

At Tapestry, this is one of the most common questions we are asked. Organizations are often first introduced to the concept of community bonds by seeing them in action, coming to learn about them as an investor, or because they have been searching for alternative forms of financing. When they approach us, they are curious to learn how bonds can work for their unique set of circumstances. 

While every organization and project is unique, there are five main criteria that typically apply across the board. We always begin by walking organizations through a simple checklist to see if their team and board should invest the time to explore this opportunity in greater detail. In this article, we will walk you through the checklist below, step by step.

The organization is a non-profit, charity or co-operative

Community Bonds are a social finance tool that allow organizations to raise capital from their community of supporters. Just like a regular bond you might purchase – say a Canada Savings Bond – these bonds are repayable, and have a fixed term and a set interest rate. 

There are two main features that differentiate community bonds and traditional bonds. The first is that in addition to a financial return, community bonds generate an environmental and/or social return. The second, is that community bonds can only be issued by non-profits, charities and co-operatives (both for-profit and non-profit).

In Canada, the sale of bonds is regulated at the provincial level by the provincial securities commissions, and at the federal level by the Canada Revenue Agency. These agencies have strict requirements for private companies that want to sell securities to the public, and the process is complex and expensive. 

Charities and non-profits, however, are exempt from these requirements under National Instrument 45-106 s. 2.38, and are able to issue community bonds so long as they can guarantee:

  • They are a non-profit organized exclusively for education, benevolent, fraternal, charitable, religious and recreational purposes
  • No commission or other remuneration will paid in connection with the sale of the security

Co-operatives go through a slightly modified process under the Co-operative Corporation Act, and their regulations vary among provinces. The process, however, remains straightforward and much less onerous than that of a private company.

In order to safeguard the interests of community bond investors, our documentation and process for issuing community bonds always meets the requirements set for co-operatives, regardless of whether we are working with a charity or non-profit. 

The organization is seeking to raise financing for the purchase or renovation of an asset

Technically speaking, there is no legal document stating that community bonds must be used towards the purchase of an asset. However, in our experience of managing over $70 million in community bonds, we have found that having these securities backed by an asset increases investor confidence, and hence the success of the campaign. This is particularly true for organizations that are issuing bonds for the first time and have not built a reputation and rapport with their investor base. 

Asset backed projects are also typically easier to build an inspirational story around. We’ve come to understand that investors like having a brick and mortar outcome – a tangible and physical project that resulted from their investment. While operational expenses are critical, they are rarely inspirational, and do not excite investors in the same way.

In some circumstances, if an organization has run several asset backed campaigns, and proved their ability to meet repayment schedules, they have gone on to raise capital for operational expenses.

CSI Community Bond Campaign History

The organization has a revenue model that allows them to repay their investors over time

While community bonds offer a social and/or environmental outcome, they are also a financial product, and issuers must have the capacity to repay the principal investment and pay out interest on schedule. 

For some organizations, income is generated through the operation of a social enterprise, for example by selling tickets, renting spaces or operating a shop. Others, and particularly those who are purchasing an asset to be used for office and administrative purposes, are able to redirect capital previously earmarked for rent payments. 

In almost all cases, community bonds will be only one piece of a larger financing puzzle. They are often used in tandem with donations, grants, interest free loans and traditional bank financing.

One appealing aspect of community bonds is that the issuer has the ability to set their bond terms in a way that will match their cash flow situation. For example, some organizations may prefer to have a longer term in order to pay off the principal investment or may decide to delay interest payments for a year or two while they get their project off the ground. 

We always work with our clients to find terms that work for their investors and their balance sheet.

The organization has a champion

What is a community champion? They are the natural leader of the project, pushing at every stage to make it come to fruition.

Tonya Surman

Tonya Surman, Founder and CEO of the Centre for Social Innovation (CSI)

In some cases there will be two champions, an internal lead who drives the project management, and a public face of the campaign, who will engage the media and publicly represent the organization.

In either case, a champion is critical to campaign success. Investors want to see a responsible and charismatic face behind their investments. They want to see someone who is passionate about the potential of the project and determined to see it come to life. This excitement is what inspires people to take the next step in learning about the project and investing their money.

The project is meaningful to your community of supporters

Of course, this probably goes without saying. If you want your community to invest, they will need to feel one of two things, or both. 

1) They are doing something positive and productive with their money. They are making a meaningful contribution to society while also making a fair financial return. 

2) They will personally benefit from seeing the project come to life. For example, they will benefit from improved access to services and spaces that meet their needs.  

In order to target the first group, the project needs to have a strong social impact and/or a positive impact on the environment. In order to target the second group, there must be a sizable group of people that stand to see their community (be it geographical or values based) benefit from the project’s development. 

This last criteria is the one that organizations tend to struggle to answer. That’s why we always help organizations interested in this model to dig deeper on this topic and begin to assess who their community truly is and understand what their appetite for investment might be. 

Once an organization has been through this checklist and feels comfortable that they fit within these criteria, the next step in assessing a community bond campaign is to participate in a community bond workshop hosted by Tapestry. 

During the 3-hour, online workshop, you will have the chance to bring together your team and board to learn more about community bonds, see how community bonds have worked for other organizations, understand how investors make decisions, and understand what a campaign budget and resource plan might look like. Upon completion of the workshop, Tapestry provides a readiness assessment to help your team and board make a decision about whether or not community bonds are an appropriate financing tool for your project. 

If you think your organization might have a project that fits these criteria, get in touch with us at info@tapestry.captial.ca

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