Big Society Capital has invested £1m in a project to underwrite community share issues, in a bid to encourage more communities to buy local assets.

The Community Shares Underwriting Fund, managed by social investment manager Resonance, has been designed to support more money being raised through community share offers, by providing an “underwriting” facility that can top up a shortfall if the target amount for the share offer is not reached.

Community share issues allow local people to come together to buy local assets and services through a co-operative structure, many of which are charitable.

Nick O’Donohoe, chief executive of Big Society Capital, said: “Around the UK there is an increasing demand from local communities to work together to secure important community assets.

"Many of the larger scale projects may face hurdles and miss their financing targets. This fund covers 50 per cent of that funding gap, allowing them to get off the drawing board faster.”  

The top-up funding would be provided in the form of an interest-only loan, which can be repaid from future community share issues once the project is up and running. This backing would mean more projects would be able to go ahead, allowing community groups to be more ambitious in the scale of share offer they can launch.

This, in turn, should help encourage participation in the community share offer by increasing confidence that the project will proceed.

The fund is receiving further investment worth £500,000 from the Barrow Cadbury Trust, Panahpur, Friends Provident Foundation and the Golden Bottle Trust. It also received an initial investment of £500,000 from Esmée Fairbairn Foundation. With a combined value of £2m, this will makes it the largest of its kind in the UK.

Big Society Capital has said it will commit a further £1m if demand for the fund exceeds expectations in the next 12 months.

Simon Chisholm, investment director of Resonance, said: “Community share offers are empowering local community groups around the country to get beneficial projects off the ground, and re-connecting smaller investors with tangible investments in their own communities.

“We’re delighted that the next round of this fund will be able to provide even more support to these initiatives, and encourage communities undertaking a share offer to get in touch.”

The fund’s expansion follows a pilot scheme which provided underwriting offers to six projects, of which three opted to draw down some of the top up loan funding to allow their projects to proceed. This enabled them to unlock almost £4m of project finance in total.

Since 2009, over 200 projects have raised finance through community shares, with a total value of nearly £40m.

Community shares are supported by the Community Shares Unit, a government-backed project run by Co-operatives UK, the umbrella body for co-operatives, and Locality, the local infrastructure body.