Charity loans: Questions to consider before you apply

First, make sure you have the fundamentals in place. To apply for a loan you’ll need at least three years of published accounts.

If that’s in order, our team can offer you hints and tips on the best way to present your case. Have a chat with us before formally applying – this can help you tap into the team’s expertise, so you get your application right first time.

Your charity needs permission to borrow money. Your governing documents set out your charitable purpose and dictate how your charity is run.

What is a governing document?

It’s a legal document that acts as a rulebook. It sets out your organisation’s charitable purpose, who runs it and who can be a member – amongst other rules and features. Crucially, it should contain information about how to handle funds.

If your governing documents don’t state if loans are allowed, you’ll need to get them updated before applying for a loan.

The governing documents will also state if you can borrow against your assets, for example on a building that you own. This is essential for a secured loan. Some documents also set a maximum amount that can be borrowed.

The Charity Commission has guidance on how to change your charity’s governing documents. Or, if you’re based in Scotland, read this guidance.

You need to be clear on the costs of the project, how you’ll use the money and pay back the loan. To get a handle on your finances, you should create a business plan with projections of income and expenditure - backed up with financial statements, market research or statistics.

Make sure your plan considers potential risks and offers ways in which your organisation can respond to keep finances on track. Lenders will look over this in detail to make sure you’re not cutting things too fine.

It’s important to also think about the additional costs, including good quality legal advice, surveyors, VAT and other expenditure.

Your finances could change over the term of your loan. How resilient is your plan?

If income changes or costs rise, will you will still be able to repay the loan? If you’re building or refurbishing and there’s a problem, will you have enough contingency?

Our loan experts can help you to consider the various scenarios and make sure you’re prepared for the unexpected, so you can adapt you plan to changing conditions with confidence.

Lenders want to see strong internal processes, management and governance. So check that you have the right mix of financial and project management skills.

You should also flag any strengths and weaknesses in your management process, particularly in areas where you need to bring in additional skills. This might mean short-term contracts for project managers, finance experts or legal professionals. These costs will need to be factored into your plans.

Being ambitious is a great trait, but it can be costly. Keep the scope and scale of your project in line with what you can realistically achieve. Give yourself room to adjust plans if anything changes. Often it helps to both explain the overall goal, and its forecast impact, along with the immediate project outputs.

Sharing the same values is vital when it comes to making impactful decisions that truly suit your organisation. You need a lending partner which understands the unique challenges charities and social purpose organisations face. At CAF Bank, we look at every lending application on its own merit, using our vast sector experience to make recommendations. Ultimately, we’re as committed to achieving your goals as you are.