In uncertain times charitable organisations need to find new ways to secure their future.
Good planning can help you to see the big picture and weigh up all the options. But there's one possibility that can often be overlooked – getting a loan.
CONSIDERING A LOAN
Some charities' governing documents may also prevent them from taking out a loan, or not specifically give them permission to consider a loan – and this can sometimes be a sticking point.
But saying no isn't always the best approach. Borrowing money wisely can have a positive impact for some charities or not-for-profit organisations and their beneficiaries.
When does using a loan or a mortgage make financial sense?
When getting a loan can make sense
Borrowing money upfront can give you the freedom to act decisively on a project with a long-term financial benefit. It can:
- create extra income streams
- accelerate your plans
- increase your sustainability
- cut costs over the longer term
- give you financial freedom
With nearly 200,000 registered charities in the UK there are many different needs. The ways in which a charity can put a loan to good use aren't always immediately obvious to everyone. And they can work for different charities in different ways – here are a few situations where the end result can make financial sense.
Creating new income streams
In order to generate income you might need to invest upfront. A loan might be the best solution for funding an income-generating project. Your income needs to be more than enough to cover the loan repayments once your new venture is up and running.
For example, if your charity offers supported living facilities, you might want to set up in a new location and need to be able to fund the upfront costs.
You'll need to be able to put together a solid business plan with realistic financial projections – and it is sensible to outline best-case and worst-case scenarios to check how affordable it really is and what the potential risks are.
See examples of finding new ways to diversify your charity’s income
Accelerating your plans
Sometimes setting a fundraising target for a new project and waiting until the money is raised can prevent your charity and beneficiaries from benefitting from the idea quickly. The cost of the project may also increase with inflation.
For example, sports charities struggling with their current facilities might find that rather than waiting for donations and subs to mount up, that a loan can help them improve their facilities up front and attract new members in sufficient numbers to cover the monthly outgoings on the loan.
Again, you'll need a good business plan to be sure that the numbers add up and that you can afford to repay the loan.
Increasing your sustainability
Having your own premises can potentially give you longer-term sustainability, growing your reach in a particular community, allowing you to create long-term plans and understand your outgoings better. Having some certainty about your location can also be reassuring to staff, service users and volunteers.
Cutting costs over the longer term
In some areas paying a mortgage on a property can be cheaper than paying rent. Buying a piece of equipment you need rather than leasing or hiring can cost you less in the long term. With inflation increasing if you are building or renovating you might lessen the impact of inflationary price rises by getting started sooner.
Giving you freedom
With restrictions attached to many grants about how they can be spent, a loan may give you more flexibility. You can choose how you use a loan, providing it is financially sustainable and effective.