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When it comes to finance, why are charities still reluctant to consider borrowing to achieve their goals?


If you’re familiar with seeing these words in adverts for financial services, you’d be forgiven for thinking that credit is more readily available than ever.

So when it comes to charities borrowing money, why are they still reluctant to consider borrowing to achieve their goals?

Could it be that commercial lenders simply don’t have the appetite for lending to charities – or simply that borrowing is perceived to be incompatible with charitable aims? In an era of austerity and reduced income sources, maybe borrowing does have its place.

Typically, traditional high street credit providers find charities don’t all have the same needs. The approval process is often linked to selling more products rather than listening to the customer, meaning that their mission and the credit process are at odds. When looking for credit funding, charities and their trustees need to be comfortable and satisfied that the lender understands the charitable sector.

This has led to the rise of specialist alternative providers such as CAF Bank, whose mission is to provide low cost banking services to as much of the sector as possible. CAF Bank uses its knowledge of both banking and charities to make the process run smoothly.

"It’s a traditional partnership", says Peter Ostacchini, CEO, CAF Bank. "We want to understand our customers' needs and work with them to find the solution. Given that any surplus CAF Bank ultimately makes is returned to the charitable sector via CAF, we believe our proposition is to help charities to acquire their aims in the best possible way".

"Charities need to plan ahead for their expenditure and finance. The certainty of a pre-planned spending and borrowing programme can alleviate potential risks and unexpected pressures. We work in partnership as your finance provider to ensure the right product is taken with a realistic timescale to repay. We want to ensure that any charity utilises the best type of product for its aims and it doesn’t feel pressured into taking finance it might not need".

With traditional sources of income via grants starting to have more clauses and caveats attached to them, often around the impact of the monies, a loan may be seen as a better option. Charities often look to borrow for four reasons: acquire or build an asset, refurbish or develop an existing asset, refinance existing borrowing or for working capital after completion of a project.

"We want to help with all of these requirements" says Ian Mansfield, CAF Bank, ‘and we can help in the discussions on a consultation basis to make sure all of the risks have been thought through. Especially where a charity may understand what it wants to do but is nervous around how to go about it.’

But there are times when a charity is looking for something different such as a quasi-capital injection. This is where CAF Bank’s sister business CAF Venturesome can help. As a social investment business, offering short-term funding of up to £350,000 to organisations with a proven social impact, it’s one of the most active and established players in the sector.

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