For trustees of a charity, taking on debt for operational or expansion purposes may be an unfamiliar concept – but this could be a useful addition to your financing options, as traditional sources of funding, such as grants, are declining. We call this concept ‘social investment’.
Social investment tips
It’s Trustees’ Week 2015, so we’ve prepared some top tips on social investment for charity trustees – these tips cover the key things you should consider when deciding whether social investment is a good option for your organisation or not.
Ensure loan finance is appropriate
- Does your governing document allow you to take on loan finance?
- Is your financial reporting robust enough to help you determine the feasibility of finance options?
Articulate the financial need
- Do you have a clearly written and realistic business plan for the investment?
- If not, do you need advice and support to write a business plan?
Consider personal liability of trustees
In a limited liability company, the liability is only limited if the trustees have acted in good faith and in the best interest of the organisation. As long as you act legally and prudently, you will not be held personally responsible.
If an individual trustee or the board has acted negligently however, legal action may be taken against them by the lender.
In an unincorporated charity, trustees may be exposed to personal liability for a loan.
Understand your potential investor
Trustees should always seek to understand an investor and their motivations before taking on any investment. Some investors may want a seat on the board for example, which may not be appropriate for all organisations.
Careful communication from the outset will enable you to select the investor which best fits with your organisation’s aims.
NCVO is working hard to make sure that charities and social enterprises have access to any form of funding and finance that contributes to sustainability, including social investment.
Certificate in financial sustainability
We’re running our very popular Certificate in financial sustainability course again, in November and December.
This course is ideal for those who have a strategic overview or responsibility for raising funds and want a combination of training, guidance and consultancy to help create lasting change to the funding of an organisation or project.
We have also become an approved provider of Big Potential, a Lottery-funded programme which offers grants to enable voluntary organisations and social enterprises to build their internal capacity in order to become investment-ready.
We can help you through the application process and then support you right through to receiving the social investment.
Social investment guide
Finally, to ensure that trustees have as much information as possible to support their thinking, we have updated the social investment information on Knowhow Nonprofit, including a section which explains each different type of investment product.
If you have decided that you want to raise finance, or if you are just beginning to think about it – do use the resources above to support you.
We are always keen to hear from you, so share your thoughts and experiences in the comment section below.