Why choosing the right lender is critical for charities and social enterprise

Carolyn Sims is Banking Director at Charity Bank. She is also a trustee and in some instances treasurer of a number of charities. In this blog post, Carolyn explains why choosing a lender that cares as much about your mission as you do can make all the difference.

 

It is understandable that many charities and social organisations feel some trepidation at the idea of taking out a loan at a time when the sector seems to be facing such financial uncertainty. Of course, loans are not always right for every situation and careful consideration of the financial commitment involved should be taken.

In the right circumstances and from the right lender, however, loans can be a valuable tool for a charity or social enterprise to further its mission and have greater control over its future.

How a loan can help your organisation

A loan can empower charities to seize opportunities, extend their reach, unlock other loans or grants, smooth cashflow and improve sustainability.

After refreshing its business plan at the start of 2016, YMCA Downslink Group (DLG) decided to increase its borrowing to purchase two freehold buildings that it was leasing. However, YMCA DLG feared that a mainstream lender wouldn’t understand what it was trying to do.

CEO Chas Walker said: ’Mainstream Banks aren’t always familiar with charity business models and we were looking for a lender who would be more knowledgeable, understanding and supportive of our plans.’

YMCA DLG was also becoming more aware of the fact that the values and ethos of mainstream lenders may perhaps undermine the positive social impact it was working towards.

‘We had been thinking a lot about our mission and ultimately felt that aligning our values with a likeminded organisation was important to us. We weren’t just looking for competitive rates but also the knowledge that any interest we paid would go towards a wider social mission.’

Finding the right social lender enabled YMCA DLG to remain true to its ethos whilst consolidating finances and securing its future.

The right lender for you

Choosing a lender that shares your mission to do good doesn’t just ensure your values aren’t compromised. It can also result in a much more understanding and beneficial working relationship. Speaking to other organisations who have worked with a certain lender and hearing their experiences first-hand can be helpful.

It’s also prudent to ask specific questions of the lender to find out what added value it offers and what would happen should you encounter difficulties.

Key questions to ask:

  • Does the lender understand your loan requirements and what it is you’re trying to achieve?
  • Will you receive a dedicated manager or be working with different people for different stages?
  • What will the lender expect you to provide before approving a loan?
  • What are the conditions precedent for drawing down the loan and are these realistic for your organisation?
  • What will happen should you encounter difficulties? How would the lender manage your account?

A lender that works in and for the social sector will have a greater understanding of how various charities operate and their differing requirements.

Ethical banking services

A number of socially motivated banks exist in the UK and provide an alternative to the mainstream. One example is NCVO Trusted Supplier Charity Bank, an ethical bank owned entirely by charities and social purpose organisations with a mission to use money for good. As part of its pledge to do more to support the social sector, Charity Bank has launched its ‘Bank On Us’ campaign to reduce the costs associated with taking on a new loan and refinancing an existing loan.

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