How to use loan finance to develop and grow your charitable organisation.
Loans for charities are a niche product. A study by the Guardian newspaper of charities and how they use loan finance revealed that just 3% had taken finance in the last 12 months.
There could be several reasons for this. Firstly, with the on going recession, many organisations – and not just charities – are wary of getting in to debt.
There could also be a lack of understanding on how charity loan finance works.
There is the fear of soaring interest rates. Currently (March 2015) interest rates are at an all time low. Whilst this is good news for organisations wishing to borrow money, charities wishing to take finance may be worried that once the economy picks up again, credit interest rates will rise to an unmanageable level.
Yet, there is now a growing market in charity loan finance, which, if it is appropriate for the charity, could help generate more donations or give them the lump sum they need to move them closer to what they need to achieve.
So what are the benefits of loan financing for charitable organisations?
Even though the latest statistics show that donations to UK charities increased by a staggering £800m over the course of a year, there are still organisations that need a cash injection.
Certainly, charity grants are not as common as they used to be and many charities struggle – especially the smaller, lesser well known ones who cannot afford to advertise as they have to plough any donations straight back in to the charity.
In a nutshell, there may be times when a charitable organisation needs a large influx of money for a particular project, which would take too long to acquire in donations.
Loans example uses
By using loan finance rather than depleting their reserves, a charity can move from its position now to its future one, quickly.
For example, loans may be used for:
- Buying land or a property. Some charities currently rent their properties, when they could actually build their own and, over time, make savings and grow their capital investment.
- When a charity needs money urgently – such as a horse rescue charity being run on rented land, which the farmer now wants back. If the charity doesn’t have enough money in their reserves to move to another property, the charity could be forced to close down.
- For a project or major advertising campaign.
- To refurbish a property.
- To bridge the gap when awaiting receipt of a grant.
- For working capital.
What types of loan finance are available for charities?
There are a number of loan finance options that may be suitable for charitable organisations. These include:
- Secured and unsecured overdrafts.
- Secured loans.
- Short term loans (which may be quicker to arrange than traditional longer term loans).
- Junior loans
- Quasi-equity
There are also specialist banks that focus on lending to charities. One such example is CharityBank. They use the money from their savers to lend money specifically to charitable organisations.
The above are examples of credit solutions that may suitable. It is important, however, that before making any decision about taking finance, a charity does its due diligence in terms of the affordability of the finance and how it will be guaranteed.
If you are a registered charity looking for a short-term loan up to £5,000 and repayable over 26 weeks, then we may be able to help. Please feel free to get in contact for a free, no obligation chat on 0203 302 4020. Or, visit our website JL Money.co.uk for more information.
Other finance funding vehicles
For those charities that are not eligible to apply for finance – or are still worried by the idea of taking on debt, there are other options that can be investigated.
- While funding by way of grants has decreased, charities may still wish to see if they are eligible to apply for Government grants.
- The Charities Information Bureau provides access to funding searches as well as training and research.
- Another similar service is FundingCentral.
In summary, there are many charities who may benefit from loan finance. While this is quite a niche area, it could be that as more charitable organisations turn to credit, more lenders will come in to the market to meet the demand, meaning more products to choose from and more attractive lending rates.