4 Note on capital or loan-financed projects
This is an area in which the SROI Network will be developing further guidance.
Where the investment is for an asset that will have a long life expectancy, such as a
building, the calculation of the social return is more complex. It is made more complex
still if the investment is financed by a loan.
Firstly, a building may have a life expectancy of many years and the activity in the
building will generate value each year – a value that may itself last for more than one
year. The value created depends, however, on the activities that happen in the building:
activities that can only be supported by additional regular income.
Secondly, in the case of a loan, repayments over the period of the loan offset the
investment in the first year. The only net cash flows over the life of the loan are the
interest payments on the loan.
Currently, the guidance for using SROI in these situations is to focus on one year only
and to emphasise that the SROI only examines the social value created by inputs that
were necessary for the activity in that one year. Again, it may be helpful to involve your
accountant here, if you have one.
In the case of a building, the inputs would be the costs of the activity, as discussed
above, plus the depreciation for one year of the expected life of the building. There are
accounting conventions for the life of buildings and your accounts will state what these
are. This represents an allocation of the cost of the building to the overall costs that are
required for the activities in the building.
Resour Resour
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A guide to Social Return on Investment 1
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