SYDNEY (REUTERS) - When Luke Terry decided to set up a business, hiring unemployed people with mental illnesses to do laundry for hotels and hospitals in eastern Australia, his friends laughed.

"I'd never really done any washing, even at home," said Terry, who lives in Toowoomba, 125km west of Queensland's state capital, Brisbane.

"People found it quite amusing." No one is laughing now. Just one year after Australia's prime minister officially opened Vanguard Laundry Services, the social enterprise employs more than 30 people and has more than 80 commercial customers.

Terry is one of an estimated 20,000 businesses in Australia selling goods or services that also help to address a social problem, according to Social Traders, which supports the sector.

Across the globe, a growing number of entrepreneurs are setting up companies to tackle social challenges, ranging from reducing isolation among the elderly to improving communities and breaking the cycle of reoffending.

One in five Australians with a mental health condition are jobless - a rate four times higher than for the rest of the population, according to Queensland's Mental Health Commission.

"People with mental illness are dying in their 50s, versus 80s for the rest of the population," said Terry.

"What if we can just give people a job and that will make a difference?" For Vanguard's employees - many of whom suffer from bipolar disorder, depression, anxiety or physical health problems - having a job brings myriad benefits.

They visit hospital less often, are less anxious about paying their rent and many have stopped smoking, a survey by Vanguard found.

Work gives people independence and financial security, provides a distraction from worries and interacting with colleagues boosts mental wellbeing and confidence, a Queensland government report on social enterprises found.

It is considering offering grants to help such businesses get started or expand, while also seeking to buy more goods and services from them.

Terry decided to start Vanguard after heading Toowoomba Clubhouse, which helps people recover from mental illness, where he saw the difference that jobs made to clients.

"Most of the people I met there said: 'I want what you have Luke. I want a partner and I want a job'," he said.

"I thought: 'I can't help with the partner, but I can help with employment'," Terry told the Thomson Reuters Foundation.

He asked around locally for "a contract in anything". What came back was the offer to do the washing for St Vincent's Private Hospital, which has 210 beds.

After three long years of fundraising - during which Terry raised A$6 million (S$6.2 million) from more than 100 sources - Vanguard Laundry Services was born.

The company is close to breaking even and any profits will be re-invested into the business or donated to mental health charities, Terry said, adding that he aims to set up 10 laundries by 2025.

One of Vanguard's goals is for its employees, eventually, to move on. It has three staff dedicated to supporting welfare and career development.

It also offers courses on money management and quitting smoking, which is much more common among people with mental illnesses.

The combination of work and on-site support has created a rebirth of sorts for many staff.

"I was in a very deep, depressive hole," said laundry worker Damien Pealing, who struggled to find work while grappling with post traumatic stress disorder, anxiety and a stutter.

"I was always unhappy and didn't feel I could get a job because of the way I talk or my appearance." After six months on the job, his story is quite different.

"I'm a lot happier at home and I have more confidence to talk to other people," he said.

"It's the first job I've had where the atmosphere is very good... Things are 10 times better." For clients, the benefits go beyond clean sheets.

"This 100 per cent meets our mission to support the community," said Adrienne Leonard, corporate services manager at St Vincent's, which has a nine-year contract with Vanguard.

"We appreciate that keeping them out of the health system helps free up beds for other people. Their employment is just part of the wider puzzle."