Loan Finance for VCSE Organisations
Opting for loan finance is a massive decision for any VCSE organisation – it’s hugely important for the organisation and its board to consider why they require this finance, the impact of the loan, and the sources of finance that are available.
Many organisations are caught in an endless cycle of demand for their services and a lack of finance to grow. With fewer grants and greater competition for public sector contracts, organisations have to look carefully at new ways to source finance. All options must be considered and the realities of what it means for the organisation should be weighed up – are the repayment terms reasonable and can they be met? What type of finance is best and are we eligible for it?
There are many types of loan: overdraft facilities, term loans, revolving credit facilities. The type of loan facility needed will depend on what the money is going to be used for and whether the organisation qualifies for the loan.
In addition to these traditional types of loan are new models of social finance and social investment which are gaining popularity. These might be structured as traditional loans but may include the charity borrowing money also giving a profit-linked return or promising a defined social return on the lender's investment.
Recently the Building Change Trust set up a £350,000 loan fund specifically for the sector with the aim of providing finance for expansion, safeguarding jobs and creating financial independence and sustainability.
When we set up this loan fund, we specifically wanted to offer small amounts unsecured against property because that’s what we felt the sector needed.
“We have shown the importance of financial products being developed and made available that meet the needs of the organisation. That’s where our focus needs to be. Through UCIT we are offering loan finance that meets a specific demand because it is more flexible and is on a smaller scale. In the future we’d like to look at new possibilities such as a grant-load hybrid and other arrangements,” the Building Change Trust’s Nigel McKinney said.
The loan fund through UCIT range from £1,000- £25,000 and can be used for a myriad of reasons including:
- Working Capital: money required to meet the day to day costs of running the organisation
- Development Finance: money required to expand the organisation’s reach, for example marketing;
- Buildings- (deposit, improvement, investing in renewable energy efficiencies)
- Equipment - (deposit, tooling, installation, training)
- Funding shortfalls in a larger grant project
- Increasing sales, new contracts
- Stock Purchases