Loans - what are they good for?

I do have doubts about loans for social purpose organisations (watch this space for a future blog on my reservations) but recently I went to an event where a clear case was made for some of the benefits.

 

The Funding South West meeting focused on loans, with presentations from three providers: St John’s Hospital (Bath), Somerset Community Foundation and Charity Bank. None of the providers were claiming that loans were the only solution. However, I did note down a number of positive things about loans:

• Straightforward, direct investment
• Encourage entrepreneurship
• Reach new social purpose organisations not eligible for traditional grants
• Enable earlier completion or start of work which needs funding
• Often come with business and investment readiness advice
• Can be used as match funding for a grant
• Less uncertain than competing for grants
• Can get organisation through to a point of getting paid under a payment by results contract

They are not suitable for everyone but I think the above list shows that loans do merit a place in the funding options and some proper consideration. I was persuaded of several situations where they could be a good idea. One example: imagine you are embarked on a capital build project and the costs are rising as you wait to raise the next tranche of funds. A loan could mean you carry on with the building work at current prices and then get on and start generating income from your activity planned to take place in that building.  Overall the costs could be lower than if you had to await the outcome of a lengthy capital appeal.


Given the increased competition for grants, a loan may also help reduce the uncertainty that comes with funding bids for those organisations that want to borrow and can afford to repay. They will be able to get on with their plans without waiting to see if they will be grant funded. And for the funder, a loan brings the benefit of recycling money to use again.

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