Secured loans

COULD YOUR CHARITY BE BETTER OFF WITH A LOAN?

Initially it can seem daunting, but for some charities getting a loan can be a good solution for funding their plans.

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 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.

WHAT KINDS OF LOANS ARE AVAILABLE TO CHARITIES?

Purchasing a property for your charity rather paying rent gives you more control over your future. You'll get the chance to:

  • establish a permanent presence
  • work out of a building that’s fit for purpose
  • gain a long-term valuable asset that may increase in value over time

In some places you might also find that it helps reduce costs because a mortgage is cheaper than renting. You'll need to do the sums for your area and make sure that you take account of potential rent rises and future increase in interest rates to work out which is likely to be more affordable long term.

As well as owning the premises your charity works out of you may want to buy a property to house staff that can't afford local market rents but can manage an affordable rent.

By owning your own premises you will also save the time, cost and sometimes uncertainty involved with dealing with your landlord

Loans can also help with building or refurbishing a property. This can be particularly useful for housing charities to ensure that their buildings are kept in good repair for tenants. Organisations can also find it a useful option when they outgrow their premises or want to offer meeting rooms and amenities to their local community or businesses.

Loans can be used to develop and enhance the capability of your organisation, such as the installation or upgrading of IT systems, which can make it easier to accelerate your plans or better service your charity’s beneficiaries. However, you might have to put your property up as a guarantee to be accepted for this kind of loan.

NEXT STEPS

Once you have decided that a loan is a potential option you need to see how feasible and realistic your plans are.

See what you need to consider before you apply for a loan

If you think a loan could be the right solution, talk to our charity loan experts about a free consultation on 03000 123 444.

Loan applications subject to credit assessment. Security will be required.

Charity assets may be at risk if you do not keep up with the repayments for a mortgage, loan or any other debt secured on them.

If you're thinking of consolidating existing borrowing, you should be aware that you may be extending the term of the debt and increasing the total amount you pay.

CAF Bank Limited (CBL) is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered office is 25 Kings Hill Avenue, Kings Hill, West Malling, Kent ME19 4JQ. Registered under number 1837656. CBL is a subsidiary of Charities Aid Foundation (registered charity number 268369).