Charity loans – a guide for trustees

Carolyn Sims

Carolyn Sims is Head of Banking for Charity Bank.

She previously worked in the City for a European Bank where she spent most of her time financing affordable housing projects. She is committed to supporting third sector organisations, and is a trustee of several charities.

Charity Bank has been a member of NCVO since 2003.

When should a charity borrow money?

Fear of debt can be understood but with the right kind of loan, charities and social enterprises can thrive – and have greater control over their future. Loans can help organisations become more sustainable by for example enabling them to acquire a property rather than paying rent.

Charity loans are not right for all projects or all organisations, but trustees need to understand what loan finance can offer to determine if it is a suitable option for their charity.

So, what can loan finance offer your charity?

Less restrictions

Grants are usually restricted to a specific activity or project. This tailors your charity’s work to the preferences of grant-making bodies – but a loan can give you more freedom. As long as your idea and your organisation is financially sustainable, you can choose what purpose you require a loan for rather than necessarily pursuing grants which are usually restricted in their purpose.


Unlike applying for a grant, you do not have to compete with other organisations when applying for a loan.

Money when you need it

Lenders can’t give you instant cash, but if the circumstances are right, a loan can be arranged within weeks. Grants can take much longer to organise, and are sometimes paid at the end of a project – rather than at the beginning, when you frequently need it.

A relationship with financial experts

Simply talking to social lending experts can open doors: lenders know others in their field, and can often team up with partner organisations to offer mixed funding packages. For example, a sports organisation was able to secure a £100,000 grant from a local trust which was identified by its social lender.

Cash flow

Loans can help you smooth out your cash flow, making it easier to plan and manage your finances. Loans can also be used to bridge receipt of retrospective grants.

What lenders look for

It may sound obvious, but the first thing lenders look for when making a decision about a loan is evidence that you can pay it back. The charity must be sustainable, ideally with diverse income streams to spread the risk and remove reliance upon a sole source of income.  They also look carefully at governance – who is running the charity, how long they have been there, and whether collectively they have a suitable skill set that includes the key business areas of finance and law.

Where social lenders, like Charity Bank, differ from commercial banks is the attention paid to social impact. If you can illustrate and provide tangible examples that your organisation is delivering social good, they will be much more willing to provide you with a loan.

If a charity can offer security in case things go wrong, the interest rate on a loan can be lower than for unsecured loans. Often property is used to secure a loan, but it is also possible to use other types of security, such as a cash deposit or a guarantee from trading subsidiaries. A long-term loan – anything over five years – would usually need to be secured, as the longer the term of the loan, the less certainty there is over future income.

Above all if you are embarking on a project that is likely to require loan finance, be it a short term working capital facility or grant bridge or a long term loan, we suggest that you engage with lenders at an early stage to get at the very least their in principle support.

Want to hear more?

Carolyn will be at the NCVO Trustee Conference on 11 November 2013, speaking about the strategic and governance implications of diversifying your charity’s income.

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