Charities need a revolution in affordable capital

31 March 2014

More needs to be done to offer charities small scale risk capital and loans to help them meet increased demands for services, according to a new report released today.

The report, commissioned by CAF Venturesome, the social investment arm of the Charities Aid Foundation, also urges loan providers to offer more affordable finance for charities.

CAF Venturesome is one of Britain’s pioneering providers of social finance to charities and social enterprises and has lent £33million to more than 400 to organisations over the past 12 years. It is calling on other organisations to follow their lead in offering affordable finance to charities.

The report, based on interviews with over 250 charities about their attitudes to and needs for repayable finance, found that nearly a third of charities (32%) cited cost as a barrier to taking out a loan.

Research conducted by Lake Market Research in partnership with Diagnostic Decisions also pointed to a need for better information about loan finance. 61% of charities planning to acquire finance in the next five years said they would like a guide to repayable finance and 33% would like more information on individual financial products.

CAF Venturesome is also calling for charities to be given clearer information and guidance about borrowing by social investors, including what repayable finance products are available and how investment can be accessed.

The report found that the number of charities relying on government grants as their main source of funding is expected to half over 5 years, from 13% to 6%. With charities increasingly looking for new ways to finance investment in their services, the report estimates that borrowing by charities could reach an annual average of £765m over the next five years.

However the cost of borrowing and lack of information may be contributing to the fact that 61% of charities have no expectation of taking on any repayable finance in the near future.

Richard Butler, Senior Investment Manager at CAF Venturesome, said:

“This report highlights the enormous  need for affordable risk capital available to charities on a small to medium scale.

“CAF Venturesome has a 12 year track record in providing affordable, unsecured loans to the social sector. Our research shows that the need for these products will increase over the next five years and we look forward to leading the way in serving this growing demand.” 

“We believe that greater involvement by grant-making trusts and foundations in social investment as well as high net worth individuals will support this need. However, a long-term solution to this challenge requires dramatic innovation in the social investment sector. “

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