More than £500m worth of social investments have been made in the UK, but charities should be cautious when entering the market because mismanagement of loans could potentially bankrupt an organisation, according to a report released today.

The social investment market is growing at a staggering pace, and likely to grow more with the launch of Big Society Capital, but a guide produced by New Philanthropy Capital has suggests that the new funding option will not be a panacea for all charities or all funding shortfalls.

Dan Corry, chief executive of the think tank, said: “Social investment is an exciting new way of funding charities, especially important as the autumn statement is unlikely to see more resources coming the sector's way. But it is no silver bullet and charities need to consider whether it is right for them as there are risks involved.”

While with large launches, such as Scope’s recent launch of a £20m social bond, charities might be eyeing up the potential income stream to plug the gap left by lost government funding and declining fundraising income, the report warns that without proper management and repayment plans charities could find themselves in a worse position than they were in when entering the market.

“Failing to make repayments may put the charity under financial pressure or, at worst, could force it to close,” the authors of Best to Borrow? warn. The entire charity needs to be behind the move into social investment, the authors say, “especially the board of trustees”.

However, the NPC authors added that social investment has the capacity to make charities more efficient by increasing the pace at which they can fund various activities, such as new buildings or delivering on government contracts.

Geetha Rabindrakumar, director of finance at Scope, said that raising finance is essential for her charity in order to grow. “The social investment market offers us the opportunity to speak to a new network of prospective supporters and offer them an additional way of investing alondside traditional donations and philanthropic loans. However it was important that we had the processes, skills and experience in place to manage these investments effectively.”