Loan Financing Your Future

This article originally appeared in ACEVO Network magazine.

The financial climate for civil society organisations (CSOs) is like that for business owners or any other entrepreneurs at the moment – the banks aren’t lending. Either finance isn’t available at all, or banks say the economic situation means they aren’t able to lend the amounts they used to.

Not only is there less money on offer, but criteria have tightened so even people with existing relationships with a lending manager will find that the goal posts will have moved this time around.

That given, if you’re going to be successful it’s best to get back to basics and make sure your application is as thorough as it can be.

First – check the criteria of whatever fund or product you’re applying for. It’s stating the obvious yes, but I can’t even begin to estimate the valuable time and energy I’ve seen organisations waste by either misreading (or not reading) the rules, or by thinking they’d just ‘take a punt’ with a lender who clearly stated they weren’t interested in their kind of project.

Next, the CAMPARI lending principles are worth considering as a means of ensuring your application will cover off all the elements a lender will be looking for. They have been around for many years but they are a good guide to the basics and with a few “tweaks” they fit CSOs very well. Be clear about:

•  the character of your project (and you as a customer),
•  the amount you want to borrow
•  the margin you’ll make in your business – and the margin (ie interest) you can afford on a loan.
• the purpose of the loan
• your ability to repay it
•  the repayment schedule and amounts
•  and the insurance (or security) you can offer to your lender (if you’re approaching a social lender outline your project’s impact too.)

If it’s your first time applying for a loan you’ll need to have a watertight business plan before a lender will consider you. If you go to a social lender they might offer support in helping you get that kind of planning and paperwork sorted – but a high street bank won’t offer that kind of help. Think about what business support you can get (cheap or for free) before you submit your application that will help you secure investment – there are sector specific experts who can help you. Professional looking cash flow forecasts will impress the person assessing your application. A short, sharp business plan with short words and short sentences will make them love you!

As well as thinking about the external people you’ll need to impress, don’t forget your internal stakeholders too. Your trustees need to be as convinced of your ability to take on loan finance as your lender. And trustees can be risk averse – unwilling to offer the value of assets like buildings as security in any deal – which can hold you back.

Finally, think about your organisation’s current and future needs and try to dovetail those funding needs together. Similarly, look for projects you can package together to sell as one to a funder. I know of a great community group whose home is a fantastic (but expensive) grade 2 listed building. They got funding to spruce up the outside back to its former glory but when you go inside you see that the refurbishment finished at the door. Now they’ve realised they need to make statutory changes indoors – to meet health and safety and child protection rules – but haven’t got the money to do it. Finding finance for fire exits and safety doors is going to be a lot harder than if they’d wrapped up that cost with the more glamourous project of restoring their frontage. And lenders are no different to grant givers in that they get tired of repeated requests – it makes you appear short sighted.

Most of all, as we all deal with more difficult economic times, it’s important that charities, social enterprises and voluntary organisations look to maximise all the fundraising opportunities available to them whether that’s gift aid, membership, grants or loans. Because even if you’ve never tried it before, with the right preparation and planning your organisation may well capable of taking on loan finance.