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Loan finance

There is an increasing policy focus on developing a more mature market place to ‘finance’ rather than ‘fund’ the sector and support further growth. As a result there has been an increase in the use of loan finance for revenue. However the VCS in general remains sceptical of loan finance as a financial tool.

What are the implications?

• Government using loan finance as a way to increase the capacity of organisations to deliver public services (eg the Big Society Bank).
• Loans can be used in addition to other income sources to create financial stability.
• The potential for money to be ‘recycled’ (eg once a loan is paid back it can be used again to support another organisation).
• Managing loans require a different set of financial management skills.
• Blurring boundaries between fundraising and financial management.
• More money available; trusts and foundations can use investments as well as interest as well as investments (described as blended value).
• Increase in ‘business information’ about organisations to support the financial market (see information on the VCS).
• Including loans in your funding mix will mean that changes in interest rates will directly impact on your organisation.

Moving forward

Could loan finance be an option for your organisation in the future?

What new skills and systems will you need to develop? For example:

• How can you support your trustee board to assess the risk involved, especially as boards are known to be particularly risk averse when it comes to loan finance.
• How can you develop the new financial management skills required? Where can you access support?

Loan finance blurs the boundaries between fundraising and financial management. Do you need to bring a wider range of people together to develop your income generation strategy and management?

Want to know more?

Prime Minister announces Big Society Bank

Published by: Cabinet Office

Date: July 2010

Format: Web

What is it? Press Release outlining the Prime Minister's vision for a bank that will put money from dormant bank accounts in England to the benefit of society.

How useful is this? It provides an overview of how the bank will be funded and a broad timeline for its implimentation.

An introduction to Loan Finance for Trustees

Published by: NCVO, with support from The Charity Bank

Date: November 2006

Format: PDF (175k)

What is it? A guide designed for trustees considering loan finance or for those who just want to be better informed about the issues.

How useful is this? As well as an overview on the loan finance, it includes a list of organisations that provide loan finance to the VCS, as well as some sources of further information.

Social Investment Wholesale Bank Consultation

Published by: Office of the Third Sector

Date: December 2009

Format: Web

What is it? The consulation exercise for the Social Investment Wholesale Bank, a new institution to provide loan finance to VCOs. The SIWB will be set up by the Government, and funded from the proceeds of dormant, unclaimed bank accounts.

How useful is this? Contains links to the initial consultation document as well as a summary of the responses to the consulation. The consulation document includes a discussion of some of the barriers that still exist for Loan Finance.

Other comments: The Big Society Bank has resulted from this consultation.