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Specialist Finance Providers (MMM, 2010)

Specialist Finance Providers (MMM, 2010)

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This document provides information about a number of providers in the UK of loans and quasi-equity (revenue sharing) who offer advantages over commercial lenders/investors.
This document provides information about a number of providers in the UK of loans and quasi-equity (revenue sharing) who offer advantages over commercial lenders/investors.

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Published by: Mission Models Money on Mar 08, 2010
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09/20/2010

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 Expanding the Financial Toolbox 
Expanding the Financial ToolboxIntroduction to alternative financial providers
This document provides information about a number of providers in the UK of loans andquasi-equity (revenue sharing) who offer advantages over commercial lenders/investors.
Introduction
Loans are still the most common form of financing for arts and cultural organisations aftergrants and donations. Certain commercial banks and specialist finance providers (see list below) such as Triodos and Charity Bank actively lend to arts and cultural organisations, while Venturesome not only lends but also underwrites loans. Some grant makingfoundations, including Esmée Fairbairn and Northern Rock, have also run loanprogrammes.Loans are not a universal solution to the capital needs of creative practitioners andorganisations, however. Research shows that many are reluctant to explore this type of financing, especially in today’s turbulent financial climate. Yet, in a sector where many don’t have adequate reserves to cushion financial blows or permit strategic investment,loan financing can help in a number of ways:
Providing financial capital to develop large-scale fixed assets, such as buying, building or regenerating a performance space.
Evening out bumps in cashflow caused, for example, by late payment of grants ordelayed payment on completion of projects.
Enabling organisations to take advantage of opportunities before fundraising iscomplete, for example buying a particular plot of land when it comes up for sale.
Providing capital for developing new sources of revenue, for example recruiting astaff member with expertise in membership or business development.
 
Expanding the Financial Toolbox
 As our case stories show, there’s more than one kind of lending and more than one way toput borrowed money to use. One notable new player on the finance scene is the specialistfinance provider. Sometimes called “social lenders” or “social banks”, their mission is toprovide capital on terms that are favorable to third sector organisations. A specialistfinance provider’s loans may incorporate features such as low interest rates, flexible termsof repayment and long repayment schedules that mean the lender is effectively sharing thefinancial risk with the organisation. Their strategies can include any of the followingmechanisms or a combination of several of them: unsecured loans, patient capital (loansprovided over a long period say 5 to 10 years) repayment holidays, below-market interestrates, underwritingSpecialist finance providers are giving a new, more honorable meaning to the term“creative financing”. They figure prominently in many of the examples in this report,demonstrating an ability to tailor lending to suit the precise needs of creative practitionersand organisations. Yet the specialist providers we contacted told us that few in the sectorcontact them than do other kinds of third sector groups. This suggests that the sector may not yet be taking full advantage of the services specialist finance providers have to offer.
Specialist ProvidersTriodos
is an ethical bank that offers a range of banking services and lends money toorganisations and businesses pursuing positive social, environmental and cultural goals.Established in 1980, it lends widely to creative organisations: in 2004, arts and culturalorganisations received 42% of the value of its loan portfolio of £548 million. Its currentfocus is on projects that integrate arts into the community. Recent projects include loans tothe Age Exchange Theatre in London, the Voicebox Centre in Darby, WASPS artistsstudios, and Komedia, an arts venue in Brighton. www.triodos.co.uk 
Charity Bank 
offers financial support and services to charities, voluntary organisationsand social enterprises including many in the creative sector. It lends up to £1 million orshort term bridging loans, working capital loans and loans for new developments and
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Expanding the Financial Toolbox
income generation strategies, among many other types of loans. It can also provideunderwriting facilities, help arrange loans from other lenders and put together mixedfunding packages. It provides leasing and asset finance and is establishing a programme of Shariah-compliant loans and leasing for the benefit of those who prefer not to use aninterest-based banking model. Charity Bank is currently working with the Arts Council toencourage more arts and culture organisations to consider loan finance. www.charitybank.org
 Venturesome
, an initiative of Charities Aid Foundation (CAF), provides capital tocharities using donations and loans from individuals, companies and foundations. Its loanportfolio is now valued at £10 million. Arts and cultural organisations make up less than5% of its clients, but it has financed a number of initiatives with creative organisations,including Out of the Blue, Circus Arts and Youth Music Theatre UK and it would like to work with more. Venturesome offers expertise and support as well as pure finance.Underwriting is a major part of its work. www.cafonline.org. Follow the links to Venturesome.
Community Development Finance Institutions
(CDFIs) are independentorganisations that provide financial services to generate both social and financial returns.There are many different CDFIs operating in diverse regions of the UK. Some of them helpcreative organisations to find finance, especially for community projects. TheirFindFinanceweb tool can help locate the CDFI in your area. www.cdfa.org.uk The
Futurebuilders England Fund
offers loan financing, grants and professionalsupport to third sector organisations in England to help them secure or deliver publicservice contracts. It has lent money to many creative organisations for a variety of purposes including providing working capital, financing the purchase of equipment andcapacity building. Stone Soup, StreetVibes Youth and Westminster Arts are among itsclients. www.futurebuilders-england.org.uk 
(NB as at March 2010 this fund is currently closedto new applications)3

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